Corpus of articles from the English newspaper 'The Financial Times' from the year 1993. MLCC machine readable version 1995 This TEI conformant electronic version edited by the MLCC project, 7 July 1995. This file (ignoring this header) is 2843829 bytes long, its text includes 428144 words.

This electronic version was produced by the Multilingual Corpora for Cooperation (MLCC) project funded by the European Union. It has been converted to use the iso-latin-1 character set (where possible) and to be TEI(P3) conformant SGML.

This file is available for non-commercial purposes only on signature of the MLCC user agreement form.

The original electronic version of this file was produced by the 'The Financial Times' newspaper.

This version produced by the Language Technology Group, Human Communication Research Centre, University of Edinburgh for the MLCC and MULTEXT projects of the European Community.

For a description of the SGML tags used in this corpus and the methods used to convert it to TEI SGML, see the associated file editdecl.txt.

English 7 July 1995 Masja Kempen David Mckelvie processing of original corpus files into tei conformance.
Letter: Older people often make better workers than the young Publication 930317FT Processed by FT 930317 From Mr MARC THOMPSON

Sir, I was not surprised to read of the increase in the operation of age bars in job advertisements ('Jobseekers over the hill at 45', March 15). Employers faced with a large pool of potential labour will invariably use some method to reduce the cost of recruitment. An age bar is one of the cheapest mechanisms that influences supply to the firm.

On grounds of efficiency employer behaviour may thus be seen as rational (and to be forgiven). In terms of equity, however, employers can be criticised for disallowing certain age groups equal access to the competition for jobs.

My own research shows that employers' perceptions of age-related performance are based on inaccurate stereotypes. For example, contrary to the prevailing stereotype, older people tend to have lower turnover rates, less frequent absence for sickness, higher commitment and better time-keeping than younger people. Thus, employers' belief that younger people are a 'better bet' may be ill-founded and their behaviour may actually be inefficient.

My advice to the European Commission would be that if they want to 'hold on to employees for several years' they may find it less costly and more efficient to employ an older person.

Marc Thompson,

research fellow,

Institute of Manpower Studies,

University of Sussex,

Brighton BN1 9RF

GB United Kingdom, EC P99 Nonclassifiable Establishments MGMT Management PEOP Labour CMMT Comment & Analysis P99 The Financial Times London Page 16 251
Arts: Whose violence is it anyway? - Television Publication 930317FT Processed by FT 930317 By CHRISTOPHER DUNKLEY

We are riding the crest of one of those waves of national hysteria which periodically affect the nation when, with gleeful prodding from parts of the old print medium (slowly but inexorably giving way before the competitive edge of the new electronic mass media which work faster and wider, though without the depth of print) people turn angrily on television - the thing on which the British population now spends more of its time than anything except working and sleeping - and blame it for the violence which has characterised mankind since the dawn of history. Unfair? Television is only to blame for an intensification of violence or a statistical increase? We shall come to that.

Consider first a small but telling example from last weekend's Independent on Sunday. The lead letter was headed 'To see the influence of TV violence, visit a playground' and it began: 'As a teacher I come across many children from happy homes who have television in their bedrooms and watch until closedown. These children watch an unadulterated diet of violence, sex, rape and torture, and the next morning act it out in the playground'. Leaving aside the fact that there is no such thing as closedown since ITV transmissions continue round the clock, this teacher is either a non viewer, a liar, or so consumed by the national hysteria that he (or she, let's say he) honestly

believes that British television transmits violence, sex, rape and torture unadulterated. Consider last night's schedules.

BBC1 offered Neighbours, The News, the travel programme Holiday, EastEnders, Carla Lane's new 'comedy' series Luv, A Question Of Sport, The News, and Budget Broadcast which took us up to 9.40 when a repeat of Smith And Jones, began. That comedy may have contained some Tom And Jerry style violence, it often does, and there may have been more in Harry Enfield's Television Programme which followed. The most likely candidate for a true taste of the teacher's 'unadulterated diet' was the American television drama Glitz which began at 10.40, since it claimed to be about a 'hard nosed Miami policeman' confronting a 'seedy underworld'.

BBC2, ITV and Channel 4 offered similar mixtures with comedy, wildlife, foreign reports, news and the arts all in evidence and few slots where violence might crop up, so is that letter not truly an example of hysteria? What other explanations are there? Teachers being what they are these days, perhaps this one simply does not know what 'unadulterated' means, or maybe he is thinking about the material available on satellite and cable services, though the overwhelming bulk of their material, at least on the non-pay channels, is similar to that on the terrestrial channels. If older.

Of course it is possible in 1993, if you are determined to do so, to find yourself the sort of diet that the teacher describes. If you are willing to go to the cinema, hire videos, or cough up for pay-TV movie channels via satellite or cable (the penetration in Britain is still slight and the number of children with pay-TV in their bedrooms must be minuscule) then you can, indeed, find plenty of the material discussed by our film critic, Nigel Andrews, in last Saturday's Weekend FT. But anyone who dedicates his life to monitoring the output of British television knows that there is less violence on the small screen today than there was 15 or 20 years ago. Were you to make today many of the episodes of The Sweeney, Starsky And Hutch, Target or The Professionals that were made in the mid-1970s, they would not be accepted for screening.

So far as I can make out (and I would no more choose to watch Silence Of The Lambs than stick my head down the lavatory) Hollywood and the video industry are turning out more and more material in which violence is the chief ingredient, and present for its own sake rather than a means to an end as in Westerns or war movies. The trouble is that, thanks to the national hysteria, television is being blamed for the nastiness of the film and video industries.

Television is a part of the world in which we live. In news and current affairs programmes it shows us more violence in a year than most Britons in previous generations saw in a lifetime. Nor are the pictures limited to factual programmes. The last episode in BBC1's recent run of its mass-appeal Saturday evening drama Casualty became famous for showing a band of young thugs invading the hospital's casualty department and finally burning it down. As with most Casualty episodes this was well acted and vividly staged, though the activities of the violent youths did seem worryingly motiveless. Perhaps that was the point. On Sunday, Channel 4 showed the 1990 movie The Krays which included several scenes of explicit violence involving fists and even

swords, shot in pretty revolting

closeup.

So which way round is the 'copycat' effect working? We know that the Kray twins and their nasty exploits are a ghastly reality. Perhaps their behaviour in real life resulted from reading too many American horror comics, one of the favourite culprits before television . . . but then how did Cain come to kill Abel, too many violent papyri? We know that Britain has suffered some appalling inner city riots in recent years, as in every century of recorded history. These dramas are telling us about some of the facts of life around us.

But are they also 'de-sensitising' viewers and inducing them to copy such violent exploits? We know that the effect upon some is precisely the opposite: the more violence they watch, the more hostile to it they become. We know this because they are forever telling us so. In their roles as public guardians people such as Lord Rees-Mogg and Mary Whitehouse watch even more violent television than most of us, yet the more they watch the more they loathe it. It seems that any causal connection is not straightforward.

This should be pointed out each time they trot out the old 'television sells butter so it must sell violence' routine. Doubtless they themselves eat butter yet are not violent, so what kind of 'proof' is this? Television commercials sell things that people are known to want by using jokes, jingles, pictures and endorsements which the advertisers know the viewers are predisposed to approve. So far as violence goes, television can clearly demonstrate technique, whether in rocking and turning a car to form a barricade or smashing a beer glass to use as a weapon. But can it make you want to do these things? It never has that effect upon Lord Rees-Mogg, Mary Whitehouse or me - what about you?

Perhaps it is just a small minority of suggestible youths with no war to fight who are turned on to violence by television? But Geoffrey Pearson's book Hooligan shows with extensive documentation that fears about the growing lawlessness of young men, and the absurd leniency of the laws, have been expressed by every generation back through the Victorians, who were worried by the new phenomenon of 'hooligans', to ancient Rome and Greece where gangs of 'Greens' and 'Blues' at opposite ends of the chariot racing stadiums would cause mayhem.

Surely in the end we must rely upon common sense. In a country where mothers in the street habitually smack their toddlers to induce obedience, where children in fee-paying schools are beaten with sticks to make them do what they are told, a country which has for centuries sent out its young men with guns and bayonets to settle matters of international disagreement, does it really seem likely that 50-year-old television is largely to blame if some teenagers conclude that violence is the way to get what you want?

GB United Kingdom, EC P7812 Motion Picture and Video Production TECH Services P7812 The Financial Times London Page 15 1336
Arts: The Met's new 'Ariadne' - Opera in New York Publication 930317FT Processed by FT 930317 By PAUL GRIFFITHS

The one success among the Met's new productions this season is almost naughtily sure. Ariadne auf Naxos is wholly about giving the audience what it wants: the unseen proprietor - the Viennese grandee for whom the stage entertainment is supposedly being prepared and enacted - is in reality each spectator in his or her seat. We ask to be amused, touched, stirred, charmed, lulled, and Strauss does it all. So it is perfectly appropriate that this New York version should be directed unashamedly at the musical and dramatic pleasure centres.

Ion Marin sustains the sweet nostalgia of the orchestral part, and balances it well to achieve a combination of richness and delicacy; there is the right sense that what we are hearing is something precious and slightly too small, a marvellous chamber arrangement of a symphonic score. The opening-night cast, American except for Ragnar Ulfung as the Major Domo, could hardly have been more suitable.

Jessye Norman had only to play herself as operatic grande dame: swift, with what was for her an unusual incisiveness, in the prologue; statuesque and magnificent, rolling out the long phrases without any pretence of real suffering, as Ariadne. Ruth Ann Swenson had all the brilliance and agility needed to complement her as Zerbinetta, but also the strength and fullness to come somewhere near matching her. As Bacchus, it was a nice touch that we should have a surprise, since Thomas Moser has hitherto made his career largely in Europe and as a Mozart tenor: he proved to have all the stature and stamina needed for this part, while maintaining a brightness and care for tone and phrasing. Thomas Stewart, too, was neatly chosen to elicit affection as the Music Master.

Susanne Mentzer was the Composer, and I suppose in an ideal world her voice would be a notch bigger and descend with confidence a semitone or two further. But one asks too much: this was a glorious performance, and strikingly different from the Octavian she had been presenting in this theatre until less than a week before. In Rosenkavalier there was always a smile and a bounce in her singing; in Ariadne she showed a different kind of youthfulness - ardour, directed energy, clear focus - and the difference was there as much in her voice as in her stage personality. She caught the steel of ambition that would make an apprentice artist capitulate to occasion.

But it was the production, by Elijah Moshinsky in designs by Michael Yeargan, that seemed most conspicuously to want to please the audience, with an aptness that would have seemed distastefully cynical in the performance of a work by any other composer. The first act takes place in a huge architectural cross-section to out-Zeffirelli the Met's Tosca: one sees part of a grand stairway, the back stage of the private theatre, and the below-stairs arrangements of the artists. There is plenty of bustle with supernumaries. People are having trouble hoisting up a backdrop for the performance in the theatre; the Major Domo has a swim of servants after him; the pantomime troupe is expanded to include a rubber-limbed, juggling Pierrot and several children as miniature Harlequins and Zerbinettas. It is the sight of a boy Harlequin that, in a pretty moment, first hints to the Composer that something is amiss.

No subterfuge is used to suggest that the second part of the piece takes place in the theatre we have seen being readied in the first. Instead of a cloth backdrop, we are treated to sliding panels, by means of which a night sky, with the constellations figured as on an old star map, can part to reveal a cloudscape or, for the finale, a screamingly vulgar sunset. The nymphs glide on to the set and off again atop high built-up costumes: they look like candles, and turn the production's irony towards campness. Ariadne is swathed in black-purple to leave the full accent on her facial profile. But why Bacchus should arrive looking like the Flying Dutchman is less easy to explain, unless as a demonstration that by now in this opera nothing matters except the projection of meaningless golden sound.

'Ariadne auf Naxos' will be broadcast live from The Met on Radio 3, Saturday 6.30 pm

US United States of America P7922 Theatrical Producers and Services CMMT Comment & Analysis P7922 The Financial Times London Page 15 748
Arts: Unidentified Human Remains and the True Nature of Love - Theatre Publication 930317FT Processed by FT 930317 By ALASTAIR MACAULAY

Love in the time of - no, not cholera, but AIDS, sex-killings, bulimia and answering machines. That is this play's theme, and the first thing to say is that, remarkably enough, it gives its audience a good time.

It has the suspense of a thriller, some impressive interweaving of different dramaturgical devices, a ready store of ironic humour, and constant seriousness about love between friends. It is also, at the Hampstead Theatre, well performed in this, the Traverse Theatre production that was so successful in Edinburgh last year. I hardly care to add that, nonetheless, the play itself is not particularly good - and I will put off saying why.

Unidentified Human Remains and the True Nature of Love, a 1990 play, is by 34-year-old Canadian playwright Brad Fraser. Set in Edmonton, Alberta, it pivots around two room-mates, David, an actor-cum-waiter, and Candy, a book critic. Though they once had an affair, he is gay and is cynical enough not to be looking for love. She, by contrast, thinks she is looking for it, whether from a handsome bartender or a devoted lesbian admirer. David's world includes hookers, drugs and rough sex. Meanwhile, out there in Edmonton, a rapist is killing women. It is easy for David to hear of these murders, but he prefers not to.

We start to assume that the ripper is among the dramatis personae: which lends a definite whodunnit tension to proceedings. But what makes the play yet more absorbing is that it shows how dangerously touched by misogyny other male characters are too. You see it brewing up, for example, in Candy's bartender lover after she firsts rejects him; and later he hits her. Yet, though this makes her reject him again, she soon finds herself hitting her lesbian admirer. Fraser's play abounds in this kind of irony. Repeatedly, it shows the overlaps between normal and abnormal behaviour.

David's pal Kane asks what he did last night. Drily, David replies, 'Got drunk, fucked some guy in a park, dressed up as a cowboy, and watched some guy beat up Benita.' Of course you laugh at this ludicrous account - the more because you know it to be true. And the irony is compounded by the ways we witnessed it - sometimes hearing him narrate it in the present tense.

Elsewhere other characters, suddenly spotlit, voice his thoughts, as if becoming the complex echoes of his mind. Everything adds up to illustrate David's own dreadful escapism, dreadful not least because he refuses to admit that the one friend to whom he is most loyal, Bernie, may well be the ripper.

Though the opening is too fancy, the play soon proceeds to hold its audience in a light, firm grasp. Ian Brown's staging perfectly realises the way in which Fraser shows us several 'scenes' at once, the way he interleaves first-person soliloquy, third-person narration and straight you-and-me scene-playing. Not all the Canadian accents are flawless - rare is the Brit who can say 'How now brown cow' like a true Canadian - but this never becomes a serious problem. All the performances, notably Dougray Scott's as David, are assured and convincing.

So why do I say this is not a good play? Because the humour, though really funny, is sometimes too cute, too TV-comedy pat. Because the characters seem all to be 'types' from textbooks. Because whatever ought to make them individual, such as the fact that Candy is a book critic, is never fleshed out. Because Edmonton itself is never fleshed out. Because, as is obvious, such characters as Jerri (the lesbian) and Robert (the bartender) are merely plot devices. Because, for that matter, so is everyone else. It is to everyone's credit that these flaws never distract you as you watch.

At the Hampstead Theatre, for a limited run

GB United Kingdom, EC P7922 Theatrical Producers and Services CMMT Comment & Analysis P7922 The Financial Times London Page 15 675
Arts: Today's Television Publication 930317FT Processed by FT 930317 By CHRISTOPHER DUNKLEY

According to the people who made today's Nature programme on BBC2, Cairo 'is known to her proud inhabitants as 'the mother of the megacities' '. You can imagine the Egyptians, can't you, down on the street corners working the words into every other sentence. What the programme makers mean by the phrase is a city with more than 10m inhabitants, serving as an example of the 'megacities' which they expect to be home for half the world's population by the year 2000. They say that Cairo's crime rate is low, there is no homelessness, and that it is only when western style solutions to urban problems are imposed without thought for the environment that they fail (7.30). Dispatches (9.00 C4) paints a very different urban portrait of Manchester's Moss Side where the unemployment level among young black men is 85 per cent and the availability of heroin, crack and cannabis attracts customers from 50 miles around. Guns can be bought for as little as Pounds 200 and the users may be as young as 14. BBC2's drama Mr Wroe's Virgins about a 19th century religious weirdo moves onto 'Martha's Story' (9.25).

GB United Kingdom, EC P7812 Motion Picture and Video Production TECH Services P7812 The Financial Times London Page 15 221
Arts: Sarah Walker and Sara Fulgoni - Two mezzo recitals Publication 930317FT Processed by FT 930317 By RICHARD FAIRMAN

The post-war British singers who proved themselves the equals in recital of any in Europe are gradually handing over to the younger generation. What they achieved looks secure. Students today are often prepared to sing in most of the main European languages and to go and do so throughout Europe, too.

Over the weekend two British mezzos at different points in their careers showed what they can do at the Wigmore Hall. For Sarah Walker the occasion marked 25 years on the London concert platform. She gave two recitals, of which I saw the first on Thursday - a happy evening, if not as frivolous as the programme may have suggested. Its cover showed a cartoon with the singer as a fairy and her expert accompanist, Roger Vignoles, as a pixie sitting on a toadstool.

Not to be outdone by any younger rivals, she sang in Italian, German, French, English and Czech during the course of the evening. Her German, in particular, was scrupulously clear. A substantial group of Schumann songs, which comprised the Mary Stuart Lieder and a few favourites including a sensitive 'Der Nussbaum', was immaculately prepared, but it is difficult to say that they went to the heart.

On either side were a vivid account of Haydn's 'Arianna a Naxos' and some rather camp Poulenc. But the best was Britten's A Charm of Lullabies, for nobody could catch better their sentiment or the malevolent gleam in the nanny's eye for the penultimate song. Wholehearted singing in Dvorak's Gypsy Songs followed. Then came bouquets, a birthday cake topped by an iced prima donna and the encores, including one about fairies at the bottom of the garden. From the programme cover we should have guessed.

On Monday the Wigmore Hall played host to a mezzo at the outset of her career. Sara Fulgoni has already attracted attention in operatic productions at the Royal Northern College of Music and here she was appearing as winner of the 1991 Edward Boyle Music Award. For one so young the voice is remarkable. Like the royal velvet red dress that the tall Miss Fulgoni wore so elegantly, it has a fullness, a richly luminous texture.

The sheer amount of tone, generously produced, was more than Gordon Crosse's Voice from the Tomb called for; the loneliness, the frightening inner silence of Stevie Smith's poetry was largely left unprobed. It was a clever idea, though, to move from these poems about birds and frogs to Poulenc's Le Bestiaire and Chabrier's rosy pigs and big fat turkeys, all done in decent French with some aplomb.

Most promising was Wagner's Wesendonck Lieder, as the voice seems generally happiest singing out in grand style. At first the phrasing was on the short side; but from the third song it started to stretch out with a truly Wagnerian span. Steven Maughan, the singer's otherwise effective accompanist, might have done still more there to keep up with his singer's vocal opulence. That, in itself, says much for Miss Fulgoni's exceptional prowess.

GB United Kingdom, EC P7929 Entertainers and Entertainment Groups CMMT Comment & Analysis P7929 The Financial Times London Page 15 539
Business and the Environment: The world's tap seizes up - Demand for fresh water is growing worldwide as the supply is drying up. Bronwen Maddox begins a series exploring the quality and cost of this scarce resource Publication 930317FT Processed by FT 930317 By BRONWEN MADDOX

Water, like energy in the 1970s, will probably become the most critical natural resource issue facing most parts of the world by the start of the next century.

That bald and disturbing prediction, based on rising population growth and pollution, comes from the United Nations Environment Programme. It is contained in the survey of the world's environment, released last year.

Nor is UNEP alone in warning that water resources, which tend to be taken for granted, are coming under strain. A recent report for the European Commission argued just that European growth could be constrained by a lack of fresh water caused by industrial and agricultural contamination.

But Tom Garvey, deputy director general of the environment directorate in Brussels, speaking at this week's Financial Times European water conference, stressed that the Commission was also increasingly aware of the high cost of raising water standards further.

As such statements make clear, the economic and political pressures accompanying the growing demand for water are the focus of growing worldwide attention.

UNEP makes a good case that fresh water resources are scarce. The proportion of the planet's water that is fresh rather than salt is tiny: only some 2.6 per cent. Nor is it easy to reach: more than 99 per cent is held as ice or snow at the poles or is underground, and almost half the rest is locked up in living organisms, soil and air vapour. The rest is in rivers and lakes but poorly distributed across the surface of the world - Lake Baikal in Siberia, roughly the size of Belgium, accounts for a fifth.

Meanwhile, demand for fresh water is rising, spurred mainly by population growth in developing countries and by the spread of agriculture. According to UNEP, the world's use of fresh water increased nearly fourfold in the last 50 years to 4,130 cubic kilometres a year.

Agriculture soaked up more than two thirds of the total - the area of irrigated land has increased by more than a third in the last two decades. The growth in Asian demand is the fastest, and by 2000 UNEP expects Asia to use nearly two thirds of the world's water compared with just over half now.

The increase in pollution in many countries is aggravating shortages further. A worldwide monitoring scheme, backed by UNEP and the World Health Organisation among other UN agencies, suggests that as many as 10 per cent of all rivers monitored are polluted.

One of the biggest problems in both industrialised and developing countries is contamination by agricultural chemicals. The nutrients nitrogen and phosphorus lead to algal blooms - such as those that recently disfigured the Venetian and Baltic coasts - which kill river life by stripping oxygen out of the water. Organochlorine pesticides are also a concern as they accumulate in the food chain; UN agencies report that rivers in some developing countries such as Colombia, Malaysia and Tanzania show higher levels than in European rivers.

Poorly managed irrigation can also lead to salinisation and degradation of agricultural soils, and irrigation remains notoriously inefficient, with around half of the water lost by seepage or evaporation before it reaches the fields.

Industrialised countries have the additional problems of high levels of poisonous heavy metals such as mercury - the rivers Rhine and Meuse are considered to be two of the most polluted in Europe.

While signatories to last year's treaties on marine pollution and dumping were divided about the deep seas' ability to absorb pollution, there is more agreement that the world's fresh water cannot adequately dilute these levels of pollution, and pollution control is needed to meet future demand for water.

Despite these strains, some standards have improved. During the 1980s, the number of people without clean water has declined from 1.8bn to 1.3bn in the 1980s out of the total population of some 5bn. Two-thirds of people living in towns now have access to sanitation compared with 56 per cent in 1980.

A big worldwide dam-building programme has helped to increase supplies: the world's rivers and lakes now feed into 36,000 large dams, half in China, compared with just over 5,200 dams 40 years ago, of which eight were in China. However, high population growth has held back the improvement in sub-Saharan Africa, while conditions in parts of Latin America are also critical, where little urban domestic waste is treated.

Pollution control in industrialised countries has also shown some success: the Rhine and Meuse have seen concentrations of lead and zinc, arsenic, copper and mercury fall in the past 10 years. However, Garvey said that 'in spite of the efforts over the past two decades, it is disappointing that the state of the aquatic environment in the Community has not improved to the extent expected'.

There are signs in some regions that pressure on fresh water supplies is beginning to hold back development. The UN, which estimates that water use is now growing at less than 1 per cent a year compared with 2.3 per cent in the mid 1970s, attributes the slowdown to shortages of water suitable for irrigation as well as to recession.

It is also becoming clear that the cost of cleaning up and avoiding shortages is much higher than some early estimates decades ago suggested. The UK water industry has embarked on a decade-long programme of improvements which may eventually cost more than Pounds 45bn in 1990 prices. Around half of that is driven by European Community environmental directives; water companies and ministers across Europe now ask whether some of those standards are unnecessarily high.

The Commission's environment directorate said on Monday that it would review almost all of its water directives this year in response to the charge that some were set more by environmental enthusiasm than by science.

However, even extensive dam building and pollution control - if it can be afforded - will not solve all resource problems. Many regions pursue water policies that are inefficient or could prove hard to sustain - such as Israeli exports of citrus fruit, or rice-growing in southern California - purely for social or economic reasons like earning hard currency, preserving a traditional industry or preventing migration from the countryside to the town.

In other regions, political tensions are likely to grow over the control of water supplies, even if ways are found to increase supplies. Nearly half the world's land is fed by water basins that cross national borders and well over 200 countries share important rivers and lakes.

Natasha Beschorner, in an illuminating pamphlet last year entitled 'Water and Instability in the Middle East' for the International Institute for Strategic Studies, comments: 'Water is a useful reminder of dependency.' She adds: 'Israel, Turkey and Egypt . . . have little incentive to concede what they regard as a strategic asset, namely priority usage,' although she argues that water resources, overshadowed by the region's other political problems, can be overstated as a source of tension.

Many have also forecast future political instability in the Central Asian republics of the former Soviet Union. The five countries Uzbekistan, Tajikistan, Turkmenistan, Kazakhstan and Kirgizstan share two rivers, the Amu Darya and the Syr Darya, and the Aral sea, once the earth's fourth largest inland body of water. The sea has lost nearly two thirds of its volume in the past three decades as the rivers that feed it are drained for growing cotton, which is sold overseas to raise hard currency.

Beschorner is right that prophesies of crisis from water shortages are easily and too frequently made. However, the complexity of the problems across both the developed and developing world supports UNEP's belief that the question of where clean water will come from next - and how much it will cost - will remain high on the international agenda.

The series will continue next week by examining water supply in the United States.

XA World P4941 Water Supply P4952 Sewerage Systems P9511 Air, Water, and Solid Waste Management RES Natural resources RES Pollution MKTS Distribution COSTS Service costs P4941 P4952 P9511 The Financial Times London Page 14 1390
Business and the Environment: Testing time for air pollution - Peter Knight examines new methods to gauge emissions Publication 930317FT Processed by FT 930317 By PETER KNIGHT

More accurate instruments for measuring air pollution, which often give higher readings than expected, are troubling many companies which may have to spend more than anticipated on controlling emissions.

This is especially true in the chemicals and petrochemicals sectors, which are under pressure to reduce air pollution levels (mainly volatile organic compounds). VOCs are the vapours given off by chemicals used in industry such as solvents and petrol. These collect in the atmosphere and react with sunlight to form photochemical smog and low-level ozone.

'The new measuring techniques enable businesses to assess realistically what their losses of high-cost products are, whereas they only had estimates before,' says Peter Woods, head of environment standards at the UK's National Physical laboratory.

It is this precise knowledge - in some cases much higher than traditional estimates - that is worrying refinery owners and bulk chemical manufacturers. Governments are attempting to meet UN targets for cuts in air pollution and these companies have to be seen to act on new information about the extent of their emissions. However, there are often insufficient funds to pay for the necessary improvements to factories and plants.

'The business has to make a decision about the cost of losing its products versus the cost of saving them. If you are losing Pounds 1m a year in product, but it is going to cost Pounds 20m to save it, then you are probably going to wait until after the recession before you start spending,' says Woods.

The pressure is growing because the UK government is thinking of specifying the instruments as part of a legal obligation in the Environmental Protection Act. This says companies must control pollution by using the 'best available techniques not entailing excessive cost'.

Joe Draper, health, safety and environment manager for Shell Chemicals UK, says there is some scepticism about the accuracy of new instruments. 'Some of the readings are above our conventional estimates, but others are below or about the same. There is still a great deal of investigation needed before we can come to any definitive statement about their accuracy.'

There are four main techniques for measuring pollution and product losses.

Simple accounting - measuring what goes in and what comes out of a process.

Point monitoring - measurements on emissions or output from specific points in the process, such as the chimney.

Ambient measuring - catching gases in tubes and analysing them.

Remote monitoring - measuring certain gases from a distance.

Significant advances are being made in remote techniques. One of the most important is a system called Dial, developed by the National Physical Laboratory with funding from government and industry. Dial, a laser-based system, measures gas concentrations up to 3km away. The system is useful in locating unknown leaks.

'Certain storage tanks, for example, that industry thought were sound, are now found to be leaking,' says Mike Woodfield, business centre manager at the Warren Spring Laboratory.

This type of news worries managers who find it difficult to raise funds to invest in a broad range of expected environmental improvements and do not appreciate surprise information from new instruments. But Draper says if the new instruments are right and more product is being lost, this makes it easier to justify the cost of reducing emissions.

Woods agrees there is some scepticism, but other companies see the instruments becoming a necessary part of their armoury to demonstrate their levels of emissions.

US United States of America P3829 Measuring and Controlling Devices, NEC TECH Products RES Pollution P3829 The Financial Times London Page 14 616
Management: One step ahead of the pack - How T&N handles R&D spending Publication 930317FT Processed by FT 930317 By CHRISTOPHER LORENZ

A country mansion in Warwickshire might seem an unlikely setting for some timely good news about British manufacturing. But Cawston House, the base of T&N Technology, is a world away from the sort of isolated rural establishment once so beloved of UK corporate research and development departments. This utilitarian, market-driven unit has been central to T&N's successful drive for a growing share of the global motor component business.

Technological innovation is especially vital to T&N's competitiveness because the company specialises in components which are critical to a vehicle manufacturer's ability to make changes in the design of its engines and braking systems. 'Our customers insist on suppliers having a particular level of R&D activity and technical reputation, before they even allow them to bid for contracts,' says Bill Everitt, the T&N board director responsible for technology.

But it is not so much the level of this spend - examined on this page last Friday - as its effectiveness that has helped T&N buck the miserable competitive trend suffered by manufacturers in so many British industries.

But why does T&N do a sizeable part of its R&D centrally, rather than making each of its three divisions, or the 11 product groups beneath them, responsible for all their own R&D? Everitt replies unequivocally: 'Because it's more efficient and productive to do it that way in terms of people, knowledge, skills, equipment and - most important - speed.'

Unlike many other companies which claim spurious internal synergy, T&N's product groups really do share technology. They need similar or identical expertise in materials, design processes, manufacturing techniques and measurement processes - all of which are moving fast but expensively, thanks to the quest for lighter, cheaper and reliable products.

In materials surface technology, for instance, 'virtually all our products move against something else - they mate with it', says Alec Parker, managing director of T&N Technology. 'So we can read our advancing knowledge about materials, lubrication and so forth across the various businesses.'

Together with the 15 per cent of Cawston's current Pounds 7m annual spend which goes on research, this work on what T&N calls 'enabling technologies' generates about 60 patents a year. The rest of T&N's Pounds 34m R&D spend goes on applications engineering, testing and other activities in the businesses.

The close commercial relevance of Cawston's work is guaranteed by a series of mechanisms. First, virtually all the work is funded on an individual project basis by the product groups around Britain and the rest of the world, rather than by T&N's head office.

Second is the method of project selection. Each project is determined in detail at an annual meeting by a mixture of specific input from a product group's sales engineers and managing director and Cawston's knowledge of market trends, gained via its direct meetings with leading T&N customers.

The third mechanism is detailed project control. The basic document for this is a one-page 'why sheet' on which the first item gives the commercial 'why?' of the project. Technical objectives and quantified target benefits are also summarised, together with costs, responsibilities and a timescale for checking the project's progress throughout the year.

Contact between Cawston and the product groups is more or less constant. Small teams from each group are always visiting Cawston, which is also used as a training ground for engineers to move into the businesses.

Although some of the projects are scheduled to last two to three years, they are not just reviewed in detail each quarter, but re-justified every year. Parker touches on every general manager's nightmare about R&D when he says: 'We dislike projects which go on forever with no conclusion.' Everitt puts it more forcefully: 'Alec's people have to do their work within the timescale and cost that they said they would.'

This control process was in operation six years ago in some of the group's businesses, 'but not all of them believed in the quarterly business reviews', says Everitt. 'It's been a question of persuading everyone to do it.'

On the productivity of development work, T&N's main measure is 'the rate per unit cost at which new products, processes and services are generated that enhance the prospects of the company relative to the competition'. These loose bones are given somewhat firmer flesh every year by a detailed analysis of the rate and cost of innovation, broken into different types of project.

Cost-benefit analyses of Cawston's work are done frequently, and generally show a return of about twice the expenditure on it. Controversially, however, full investment analysis on individual projects is done rarely.

Everitt says there is little point in doing so, since discounted cash-flow analyses are so prone to error, depending on the subjective assumptions that are fed into it. Of payback calculations, he says, 'we don't believe the numbers'.

Instead T&N takes what he calls 'a judgmental view' of the likely benefit to the customer. This reflects acute awareness throughout T&N of a principle which many UK manufacturers used to ignore, at the expense of much necessary investment: that a heavy 'opportunity cost' can be incurred by not going ahead with a particular project. In addition to losing a particular sale and valuable market share, the company may harm its hard-won innovative reputation with an important customer, says Everitt.

'A lot of all this is to do with creating technical reputation and the ability to collapse lead time,' he continues. 'It's the opportunity cost of staying in business.'

A final article will examine the impact of R&D on one of T&N's operating companies.

T and N GB United Kingdom, EC P3714 Motor Vehicle Parts and Accessories RES R&D spending TECH Research MGMT Management P3714 The Financial Times London Page 14 971
Management: A fast track to efficiency - London's Docklands Light Railway is now being managed by the private sector Publication 930317FT Processed by FT 930317 By RICHARD TOMKINS

Here is a novel idea for public sector railway managers. Tired of complaints about unreliable trains? Easy: take Pounds 30m of taxpayers' money, give it to an independent contractor and leave the private sector to put things right.

That, at least, seems to be the thrust of the unprecedented deal struck by London's Docklands Light Railway last week in appointing Brown & Root, the US engineering group, as its prime contractor.

Brown & Root will not take over the day-to-day running of the railway. But over the next three years it will manage the remaining stages of an Pounds 800m expansion and improvement programme. At the end of that time it must deliver a railway that works. Its Pounds 30m fee is geared directly to results.

The significance of the deal is that it is wholly uncharacteristic of the railway industry. Railwaymen fervently oppose the notion that anyone should come between them and their trains. They insist on controlling every aspect of building and running the system, with the private sector's role limited to that of sub-contractor and supplier.

But the Docklands Light Railway's managers are not railwaymen. Since November 1991, they have been a team of defence procurement experts drafted in from the Ministry of Defence. Their chairman, Sir Peter Levene, is former head of defence procurement at the MoD. He also heads the prime minister's efficiency unit.

When Sir Peter and his team arrived, the Docklands Light Railway was in such disarray that the government had seized control of it from London Transport and passed it to the London Docklands Development Corporation.

Its poor performance can be partly blamed on the fact that it was built on a shoestring budget of Pounds 77m at a time when the government's ambitions for Docklands were modest. When Olympia & York, the Canadian property developer, proposed transforming Canary Wharf into London's third commercial centre, the toy-town railway had to be improved.

When the government responded by authorising an Pounds 800m expansion and upgrading of the line, the immediate effect was to make matters worse. Already incapable of meeting the demands being made on it, the system had to cope with being rebuilt while trains were still running. Consequently, services deteriorated to the point of chaos.

But was there more to its poor performance than this? Today, the railway is running 98 per cent of scheduled train mileage compared with a low of 67 per cent before the management changeover. What caused such a drastic turnround?

Sir Peter says some simple manAgement actions produced quick results. For example, his team discovered that the computer controlling the train operations was overloaded. That was rectified through the seemingly obvious action of trimming the train service.

Another step was getting to grips with the contractors responsible for supplying track, trains and so on.

'Some of contractors were performing extremely badly,' says Sir Peter. 'The DLR people said: 'We've written to them and asked them to do better, but they're just not doing that.' I said: 'Well, let's stop paying them.' They said: 'You can't do that - they'll sue.' So I said: 'Let them'.'

The result? 'Some sharp words were exchanged, but the performance of those contractors changed overnight.'

To be fair to London Transport, it could be argued that the improvements in the railway's performance might have happened without the change in management. Conceivably, Sir Peter's team simply enjoyed the fruits of action initiated by the previous incumbents.

London Transport, however, acknowledges Sir Peter and his colleagues wrought changes. One advantage they enjoyed was the freedom to act without constant reference to headquarters. Another was their reputation for tough dealing with contractors such as GEC while at the defence ministry. Indeed, that was one of the main reasons for bringing them in.

It was a logical extension of this last point that led to the decision to appoint a prime contractor. The team is now applying the techniques of defence contracting to railway projects, says Sir Peter. If the defence ministry wants to order a new fighter aircraft, it does not deal with dozens of contractors making all the sub-systems. It defines the performance it wants, signs a contract for delivery with a single company such as British Aerospace and leaves it to the prime contractor to deliver the aircraft it wants.

As in the defence industry, so in transport. Sir Peter's team will no longer deal with dozen contractors involved in the extension of the railway to Beckton, the installation of a new control system and the supply of new trains. That - and the integration of these parts into a smoothly-running whole - will be Brown & Root's job.

Is this the way of the future for other railway projects? Possibly. One worrying factor, however, must be cost. Theoretically, a private-sector contractor motivated by a performance-related fee will do a better job at project management than a flabby public-sector body. But the Docklands Light Railway only brings in Pounds 3m a year in ticket sales. Seen in that light, Pounds 30m seems an awful lot to pay.

The cynical view might be that the government is prepared to nod the deal through, hoping it will better prepare the railway for its planned privatisation. So it might; but that, says Sir Peter, is not the point.

'The question is whether it represents good value for money. Everyone's been satisfied that's the case, and now we are going ahead. I think we would be criticised for spoiling the ship for a ha'p'orth of tar if, having spent Pounds 800m on the railway, we had not spent another Pounds 30m in getting it to work.'

Docklands Light Railway GB United Kingdom, EC P4111 Local and Suburban Transit MGMT Management MKTS Contracts P4111 The Financial Times London Page 14 991
People: Macmillan Publication 930317FT Processed by FT 930317

Macmillan, the UK publisher, has appointed a new group managing director to take responsibility for book publishing operations in the UK.

Iain Burns, who has been a non-executive director there for the past three years, has been involved in publishing for nearly 20 years having joined Collins in 1973. He has also worked for International Thomson and Octopus. After Reed International's takeover of Octopus in 1987, Burns became chief executive of Abaco Investments.

Nicholas Byam Shaw remains executive chairman of Macmillan.

*****

Derek Hunt, the director of finance at Thames Television since 1985, has decided to leave the company in June 'to devote more time to his other interests'. He will be succeeded by Nick Humby, the present financial controller. Humby, 35, who qualified as a chartered accountant with Price Waterhouse, has been appointed deputy director of finance and joins the board as director of finance on July 1.

*****

Bruce Hewett, formerly group director of current affairs at Southern Water, has been appointed director of technical affairs at SOUTH WEST WATER; he succeeds Bill Dickens who retired last autumn.

*****

John Hogan, chief operating officer of LASMO, has been appointed to the board.

GB United Kingdom, EC P2741 Miscellaneous Publishing P4833 Television Broadcasting Stations P4941 Water Supply P1311 Crude Petroleum and Natural Gas P1321 Natural Gas Liquids PEOP Appointments P2741 P4833 P4941 P1311 P1321 The Financial Times London Page 13 238
People: Sutherland comes to Ross Publication 930317FT Processed by FT 930317

Ross Group, the acquisitive consumer electronics and packaging company which lost its high-profile chairman Roger Shute last June, has hired former ITT executive Neil Sutherland as its group managing director.

When Shute stepped down because of ill-health from his non-executive position, managing director Noel Hayes took on the additional role of chairman while a replacement was found. Hayes remains executive chairman.

'Roger's departure was merely a catalyst. We had almost decided to bring on another senior executive anyway,' claims Hayes, pointing out how the group has grown since he joined in October 1989, with turnover last year at Pounds 50m, compared with Pounds 6m then.

The company was also loathe to look for a non-executive chairman - 'some City dignitary who would charge Pounds 10,000 and arrive for six free lunches a year'.

Instead it hopes it has found in 53-year-old Sutherland someone who both subscribes to the company's philosophy - success by working 'longer and harder' than the competition - and who complements existing skills on the board. Hayes, 36, came from the City, with a short stint as senior sales director of Kleinwort Benson Securities, preceded by positions at Citicorp Scrimgeour Vickers. Finance director Anthony Schofield has a traditional accountancy background.

Sutherland, by contrast, has spent most of his life in big company manufacturing, largely concerned with consumer electronics. An engineering graduate from Edinburgh University, he started out with Nuclear Enterprises, before moving to Plessey.

In 1982, he joined Dubilier, working in the US as well as the UK. Three years later he moved to ITT, where he spent eight years as managing director of the ITT Cannon Group, supplying components and systems to telecommun-ications, auto, consumer and industrial electronics markets.

Ross has still to dispel completely what Hayes himself has termed 'the Roger Shute effect' whereby the share price dived following Shute's exit. It has only partially recovered, trading in the 30p-33p range in the last couple of months. 'I am very happy to be judged by our results,' says Hayes.

The company reports on April 8.

*****

BM Group, another company once chaired by Roger Shute, has taken steps to strengthen its board. The construction equipment and engineering concern has appointed Richard Miles, former chief executive of Steetley, as a non-executive director.

It will be the most demanding role Miles has taken on since Steetley lost out to a hostile Pounds 613m takeover bid by rival building materials group Redland a year ago. His other activities include the non-executive chairmanship of Bucknall Group, a construction consultancy.

Following a collapse in its performance, BM had been looking for another experienced non-executive to support a root-and-branch review being carried out under its new chairman Moger Woolley.

Ross Group BM Group GB United Kingdom, EC P36 Electronic and Other Electric Equipment P26 Paper and Allied Products P35 Industrial Machinery and Equipment P353 Construction and Related Machinery PEOP Appointments P36 P26 P35 P353 The Financial Times London Page 13 500
People: Non-executive directors Publication 930317FT Processed by FT 930317

Michael Kettle at APPLEYARD GROUP.

Appleyard Group GB United Kingdom, EC P5511 New and Used Car Dealers P7538 General Automotive Repair Shops PEOP Appointments P5511 P7538 The Financial Times London Page 13 41
People: Non-executive directors Publication 930317FT Processed by FT 930317

Neil O'Donoghue has resigned from COMMUNITY HOSPITALS GROUP.

Community Hospitals Group GB United Kingdom, EC P7349 Building Maintenance Services, NEC P1522 Residential Construction, NEC P6719 Holding Companies, NEC PEOP Personnel News P7349 P1522 P6719 The Financial Times London Page 13 49
People: Non-executive directors Publication 930317FT Processed by FT 930317

Brian Young, recently retired md of BTR's distribution group, at The WHOLESALE FITTINGS.

Wholesale Fittings GB United Kingdom, EC P5063 Electrical Apparatus and Equipment PEOP Appointments P5063 The Financial Times London Page 13 42
People: Non-executive directors Publication 930317FT Processed by FT 930317

Panton Corbett, a director of Singer & Friedlander, at HAYNES PUBLISHING GROUP.

Haynes Publishing Group GB United Kingdom, EC P2741 Miscellaneous Publishing PEOP Appointments P2741 The Financial Times London Page 13 40
People: Non-executive directors Publication 930317FT Processed by FT 930317

Arnold Taylor has resigned from PLATEAU MINING.

Plateau Mining GB United Kingdom, EC P10 Metal Mining PEOP Personnel News P10 The Financial Times London Page 13
People: Non-executive directors Publication 930317FT Processed by FT 930317

Peter Grant, a former vice-chairman of Lazards and chairman of Sun Life Assurance Society, as chairman of HIGHLANDS AND ISLANDS AIRPORTS.

Highlands and Islands Airports GB United Kingdom, EC P4581 Airports, Flying Fields, and Services PEOP Appointments P4581 The Financial Times London Page 13 53
People: Non-executive directors Publication 930317FT Processed by FT 930317

Wendy Luscombe, a member of The Commission for New Towns and a director of Aldrich, Eastman and Waltch in Boston, at The BERKELEY GROUP.

Berkeley Group GB United Kingdom, EC P1521 Single-Family Housing Construction P6719 Holding Companies, NEC PEOP Appointments P1521 P6719 The Financial Times London Page 13 57
People: Non-executive directors Publication 930317FT Processed by FT 930317

Tobias Cepelowicz has resigned from BRAZILIAN INVESTMENT TRUST.

Brazilian Investment Trust GB United Kingdom, EC P672 Investment Offices PEOP Personnel News P672 The Financial Times London Page 13 37
People: Non-executive directors Publication 930317FT Processed by FT 930317

Peter Norris has resigned from CHINA AND EASTERN INVESTMENT Co.

China and Eastern Investment GB United Kingdom, EC P672 Investment Offices PEOP Personnel News P672 The Financial Times London Page 13 40
People: Non-executive directors Publication 930317FT Processed by FT 930317

John Bullock, former joint senior partner of Coopers & Lybrand UK, at KINGFISHER.

Kingfisher GB United Kingdom, EC P5399 Miscellaneous General Merchandise Stores PEOP Appointments P5399 The Financial Times London Page 13 41
People: Non-executive directors Publication 930317FT Processed by FT 930317

Malcolm Parkinson, chief executive of Woolworths, at JAMES LATHAM.

James Latham GB United Kingdom, EC P5031 Lumber, Plywood and Millwork PEOP Appointments P5031 The Financial Times London Page 13 38
People: Non-executive directors Publication 930317FT Processed by FT 930317

Karel Vuursteen, deputy chairman of the executive board of Heineken NV, at WHITBREAD; Gerard van Schaik has retired.

Whitbread GB United Kingdom, EC P2082 Malt Beverages PEOP Appointments P2082 The Financial Times London Page 13 44
People: Baron moves to Paine Webber Publication 930317FT Processed by FT 930317

Further signs that US securities house Paine Webber is building up its international bond capability come with the arrival of Tony Baron in the London office as international fixed income strategist.

Baron, 42, had spent two years as chief economist of Sakura Finance International (previously Mitsui Taiyo Kobe). Before that, he had been with Chase as head of economics and portfolio strategy at the investment bank in London, and earlier partner and chief economist at Laurie Milbank, the stockbrokers purchased by Chase in 1986.

He says that while Maury Harris, chief economist of Paine Webber in New York, is 'exceptionally good' on the US, he is there to bring the international dimension. The idea of being 'in at the beginning of a build-up operation' appeals to him and he hopes he will be 'used more intensively' than he was at Sakura.

One of the few Laurie partners to see out the full four years of his contract at Chase, Baron contrasts the 'very good atmosphere' at Paine Webber with the 'pain of living through Chase's retreat from the securities business'. He adds he likes the fact that energies appear to be focused on building business 'not building personal empires' - a preference which might surprise former colleagues who describe him as an intensely political animal. 'I prefer not to fight,' Baron rejoins, 'but if the alternative is watching your team die, than your get off your butt and get your hands dirty trying to fix things.'

Paine Webber Group GB United Kingdom, EC P6211 Security Brokers and Dealers PEOP Appointments P6211 The Financial Times London Page 13 279
Jobs: Those who pay the managerial piper .. - Rude awakening for victims of decades-long refusal to face up to a fundamental question Publication 930317FT Processed by FT 930317 By MICHAEL DIXON

'STOP them making that noise,' ordered the Jobs column's wife, elbowing it out of sleep in the early hours. Unable to hear anything - it was before we had children - I asked which noise she meant. Her reply was my first introduction to the experience of a haunting mystery.

'They're playing that tune Oldham on the tins,' she said.

She then lapsed into coma, leaving me lying there twitching. After all, my failure to hear any untimely music-makers might have been simply because I was too deeply asleep. Nor was the momentary quiet any guarantee that they wouldn't strike up again as soon as I nodded off.

So deciding street rowdies must be responsible, since all of our neighbours were old, I went and got a bucket of water and put it by the window. Their next number was going to be 'Stormy weather', I vowed . . . until the mystery took me in its grip.

What bugged me was not the unconventional instruments they had reputedly been playing - a scaled-down steel band, perhaps - but that I couldn't remember how the tune called 'Oldham' went. As it was named after a town, I reasoned, it must be a hymn-tune on a par with 'Aberystwyth' ('Jesu, lover of my soul . . .'). And I was just pondering whether it would be Christian to pour cold water on people performing sacred music even at an ungodly hour, when sleep supervened.

Although next morning the tins-players had gone without trace, I was soon at the church consulting hymnals. But neither then nor since have I managed to come any nearer to my quarry than 'Warrington' ('O son of God, eternal love . . .'). Hence the mystery of the tune called 'Oldham' continues, and all the more hauntingly because it has now been joined by the equally bewildering quest for the book called 'The New Geo-Economics'.

Once again there is a clue. The Times Literary Supplement recently named not just the book, but the author at the foot of an article he'd written. He is Edward H. Luttwak of the Center for Strategic and International Studies in Washington. But there was no mention of the book's publishers which, wanting to read it, I needed to know. Nor was there any reference to it in the FT's compendious database, and the Literary Supplement was unable to help since the article had come in by fax and the publishers' name had apparently fallen off the bottom.

I therefore telephoned the Washington Center, which referred me to another number. When I called it, an answering machine referred me to a further number. It turned out to be a second answering machine which referred me to a third. And all it would say was that Dr Luttwak 'is out of town until May' which comes across as barely plausible, sounding a bit like 'he's in the bath until a week on Saturday'.

So here I am stranded, not even as near as the equivalent of Warrington, which is a pity because his article suggested that his elusive book sheds light on a problem now bedevilling a great many young people. While by no means confined to Britain, it was graphically depicted by one Sha Wylie of Southampton who, after graduating last year and applying for many jobs only to receive rejections, has suffered the final indignity of having a request for an application form rejected.

Understandably angry, Sha Wylie - like a lot of others similarly jobless - puts the blame squarely on the current British government's handling of the economy. My suspicion, however, is that the problem is rooted much farther back, with today's unemployed graduates hit by the cumulative effects of successive governments' neglect of a question which should have been cleared up 30 years ago. Worse, if I twig Edward Luttwak aright, standard economic measures are not going to provide an effective answer.

Now, unlike 'Oldham', the long neglected question will strike enduring readers as an all too familiar tune, having last been on the order of service only five weeks ago. The question is how an education system increasingly focused on getting youngsters through academic-type tests and exams is going to arrest economic decline, let alone generate Britain's renewed prosperity.

The point was glossed over by the committee of inquiry headed by the late Lord Robbins which in 1963 recommended the first post-war expansion of higher education. It was apparently just assumed that enriching the workforce with a larger share of folk educated to what is deemed a higher level, would somehow of itself make the nation more productive as well as civilised.

That assumption can hardly be said to have been justified by events, which have rather borne out doubts voiced at the time by a few dissenters. They argued that increased concentration on academic pursuits would lead youngsters with at best middling talent for them to continue with scholarly studies in preference to practical training more suited to their mix of abilities.

The result would be twofold. Fewer and fewer teenagers would join the workforce motivated to learn to do skilled jobs. More and more graduates would join it at the age of 20-plus, believing that their degrees entitled them to enter at a higher level even though all that most of them were practically equipped for was clerical and administrative work.

True, that may have been sustainable as long as such work was plentiful. But things have changed - which brings Edward Luttwak back into the act.

To judge by his article, his thesis is that while conventional macroeconomic theories might work perfectly well in a world run by economically rational people, the rationality of those who actually run same is less economic than political. Hence in their urge for power, those in the developed world have as their goal 'not the highest possible standard of living for a country's population, but rather the conquest or protection of desirable roles in the world economy.'

'The winners will have those highly rewarding and controlling roles,' he adds, 'while the losers will only have the retail business and assembly lines - if their home markets are large enough, or if fully assembled imports are kept out by trade barriers. We have already seen that when 'transplants' replace domestic production, the local employment of manual and semi-skilled labour may continue, but finance and all higher management, as well as much research and development and design, are transferred back to the country of origin.'

At which point, if he's right, it is not only the Sha Wylies of Britain who will rudely awaken to their own sad role in the drama. The same may well apply to older Brits whose executive-type jobs have disappeared to places with earnings enough to pay numerous managerial pipers.

Moreover, if it is true such jobs are plentiful only in the countries of origin of important productive enterprise, then supplies are unlikely to return to Britain until it has a workforce with the practical skills to do the originating. So it would seem time for the politicians to stop vesting more costly hope in the failed academic experiment, and re-engineer the education system from top to bottom.

Failing that, all I can suggest is that fellow-Brits join me in a hymn - named not after a town, but for St Anne - which goes: 'O God our help in ages past . . .'

GB United Kingdom, EC P2731 Book Publishing TECH Products P2731 The Financial Times London Page 10 1287
VAT drop hits public finances Publication 930317FT Processed by FT 930317 By EMMA TUCKER, Economics Staff

A SHARP DROP in receipts from value added tax contributed to a deterioration in public-sector finances last month.

The public-sector borrowing requirement in February was Pounds 5.4bn, Pounds 1bn higher than the market expected. The figure took the PSBR for the first 11 months of this financial year to Pounds 27bn compared with Pounds 7.4bn in the same period last year.

The large monthly shortfall compares with a modest borrowing requirement of Pounds 963m in February last year.

The increase in the PSBR could be explained partly by lower VAT receipts than in the previous two months, when a new collecting system brought receipts previously paid in February forward to January.

Central Statistical Office figures showed that VAT receipts last month were Pounds 2.9bn compared with Pounds 4.3bn last February. In January receipts amounted to Pounds 3.34bn, contributing about Pounds 1bn to January's Pounds 3.83bn government surplus. Excluding privatisation proceeds - mainly the final call on British Telecommunications stock - the PSBR last month was Pounds 5.8bn.

High government cash outlays also contributed to February's large borrowing requirement. Although central government spending of Pounds 20bn was slightly less than in January, it was Pounds 2.7bn higher than in February last year. The statistical office said that in the first 11 months of this financial year total cash outlays were 13.5 per cent higher than in the previous year.

Income tax receipts were also lower, underlining the continuing impact of the recession. The government collected Pounds 3.8bn in income tax last month compared with Pounds 4.25bn last February. Corporation tax of Pounds 329m was little changed from February last year. Social security contributions amounted to Pounds 2.87bn, unchanged on last year. The statistical office said Inland Revenue receipts for the first 11 months of the year were 4.5 per cent lower than in the same 11 months of 1991-92. Social security contributions were 3 per cent higher.

GB United Kingdom, EC P8811 Private Households ECON National income P8811 The Financial Times London Page 9 348
Local calls cost more than abroad Publication 930317FT Processed by FT 930317 By ANDREW ADONIS

LOCAL calls cost more in the UK than in any other large country in Europe, north America or Australasia according to a survey of international telecommunications prices. But the UK's international calls are the cheapest of the 10 countries surveyed, and its trunk calls the second cheapest.

The survey, published by National Utility Services, a consultancy group, shows that for a three-minute local call at average rate UK consumers pay at least twice more than those in Canada, the US, Sweden, the Netherlands and Italy.

Canadians pay an unusually high exchange line charge, equivalent to Pounds 38.78 a month. However, at Pounds 10.28 British Telecom's monthly charge is found to be higher than those in Australia (Pounds 10.21), France (Pounds 9.57), the US (Pounds 8.62), Italy (Pounds 7.70), the Netherlands (Pounds 7.62) and Belgium (Pounds 6.76).

The survey shows UK consumers fare better in long-distance and international calls. They pay less for international calls - Pounds 1.24 for three minutes at average rate - than those in any of the other nine countries, and barely half the going rate in Italy (Pounds 4.41), Italy (Pounds 2.44) and Sweden (Pounds 2.42).

At 27p for three minutes at average rate for trunk calls, UK customers pay less than in all nine other countries except the Netherlands (21p). Germany and France are highest at 80p and 77p respectively.

Mr Andrew Johns, National Utility Services director, said: 'Having finally won approval from industry watchdog Oftel to rebalance its costs and increase exchange line rentals, it is surprising that BT has not lowered local charges other than through volume discount schemes.'

Telecoms Price Survey, NUS Ltd, Carolyn House, Dingwall Rd, Croydon CR9 3LX. Pounds 25.

--------------------------------- HOW UK RATES COMPARE --------------------------------- UK 11.5p Australia 11.3p Belgium 9.9p Germany 9.3p France 7.3p Italy 5.7p Netherlands 5.4p Sweden 5.4p US 5.2p Canada nil --------------------------------- Prices as at end-1992 prices and exchange rates. Call of 3 minutes duration, average of different time rates. --------------------------------- Source: NUS. ---------------------------------

British Telecommunications GB United Kingdom, EC P4813 Telephone Communications, Ex Radio COSTS Service prices P4813 The Financial Times London Page 9 365
Companies' liquidity ratio falls Publication 930317FT Processed by FT 930317 By PETER NORMAN, Economics Editor

THE short-term liquidity position of Britain's large companies deteriorated in the final quarter of last year as falling interest rates encouraged companies to boost borrowings and run down their bank deposits.

The Central Statistical Office reported that the seasonally adjusted liquidity ratio for large UK industrial and commercial companies fell to an estimated 111 per cent at the end of last year from 119 per cent at the end of the third quarter and 121 per cent at the end of 1991. The ratio, measuring current assets maturing in less than a year as a share of liabilities that have to be repaid in less than a year, was the lowest since the first quarter of 1991.

The liquidity ratio for large manufacturing companies fell to 100 per cent from 109 per cent in the previous quarter and 118 per cent at the end of 1991. The ratio for large non-UK manufacturing companies fell to 125 per cent from 132 per cent in the quarter, but was still higher than the 123 per cent at the end of 1991. City economists were untroubled by the apparent deterioration of UK companies' short-term finances. Mr Leo Doyle, UK economist of Kleinwort Benson Securities, said the figure reflected balance-sheet restructuring as interest rates fell. It should not impinge on companies' ability to invest using retained earnings.

Non-seasonally adjusted figures from the CSO showed that companies ran down their short term deposits with UK banks to Pounds 22.3bn in the fourth quarter from Pounds 24.5bn at mid-year while increasing their overseas assets.

GB United Kingdom, EC P8721 Accounting, Auditing, and Bookkeeping Services P99 Nonclassifiable Establishments ECON Economic Indicators P8721 P99 The Financial Times London Page 9 296
Catching baddies after they cross borders: Sir Brian Unwin tells Andrew Jack how attitudes among Customs staff have changed in the single market Publication 930317FT Processed by FT 930317 By ANDREW JACK

SIR BRIAN UNWIN has just two weeks to switch between two of the most significant public-service jobs in the European Community: from head of UK Customs and Excise during the implementation of the single European market to head of the European Investment Bank.

He seems fully prepared for the transition. 'What I do now have is this extraordinary privilege,' he says, sitting in his office overlooking the river Thames. 'Having broken down the borders I now have a chance to go inside them and help make it all work.'

Sir Brian, who was at Customs for four years, argues that his greatest challenge was removing the borders for traders as part of the single European market and motivating his staff to back the reforms. His team had to cope with withdrawing 1,600 staff from the frontiers.

In place of the old arrangements is a system based around greater intelligence-gathering and the targeting of smugglers. 'There is tremendous tradition and loyalty in Customs,' he says. 'That is a strength, but can also be a weakness. It made it more difficult to move staff away from the baggage benches and convince them that they can still catch baddies without deploying everyone at the frontiers. For centuries they were there with their cutlasses stopping things coming in.'

One of his biggest battles was to persuade people within Customs that the removal of border controls would take place. 'It posed a threat to people's jobs and their way of working. There was a tendency four years ago to just wish it away.'

'I said to the staff that it is jolly uncomfortable and extraordinarily difficult, but we have got to face up to it. Unless we plan now, we won't have any control and we will be faced with an imposed solution which will be less in your and the UK's interests.'

In general, Sir Brian is pleased with the results to date on the single-market initiative. 'We have delivered the government what it wanted by removing the borders without threatening our security.'

He believes the UK played an important role in changing the shape of the single European market, blocking mandatory harmonisation of value added tax throughout the EC and keeping the requirements for paperwork to a minimum.

Sir Brian says Customs was used as a model for the government's executive agency reforms, which are now being mirrored by the Inland Revenue.

But he sees an important continuing role for central control. 'I've developed our own model with 30 executive units. We have wide executive functions with a central policy role and report to the chancellor.'

He believes he has made considerable progress in changing the way Customs operates and lays particular emphasis on promoting equal opportunities - especially the promotion of women, such as Mrs Valerie Strachan, his deputy. She has now taken over his post.

'After working in the Treasury and the Cabinet Office, Customs seemed very male-dominated to me,' he says. 'It still is, but things are starting to change.'

He says the main challenge in his new job at the world's biggest international lender will be to consolidate the institution and reflect the new impetus it received at the Edinburgh summit. 'We are under tremendous pressure to increase the volume of lending,' he says. 'But we must also maintain rigorous criteria to sustain quality.'

GB United Kingdom, EC QR European Economic Community (EC) P9311 Finance, Taxation, and Monetary Policy P6011 Federal Reserve Banks PEOP Personnel News Sir Unwin, B European Investment Bank P9311 P6011 The Financial Times London Page 9 623
BT rates for local calls 'high' Publication 930317FT Processed by FT 930317 By ANDREW ADONIS

LOCAL calls cost more in the UK than in any other large country in Europe, north America or Australasia according to a survey of international telecommunications prices. But the UK's international calls are the cheapest of the 10 countries surveyed, and its trunk calls the second cheapest.

The survey, published by National Utility Services, a consultancy group, shows that for a three-minute local call at average rate UK consumers pay at least twice more than those in Canada, the US, Sweden, the Netherlands and Italy.

At December 31 1992 rates of exchange, the comparable prices were 11.5p in the UK against nil in Canada, 5.2p in the US, 5.4p in Sweden and the Netherlands and 5.7p in Italy. After the UK, Australia imposed the next highest local charges (11.3p).

To compensate, Canadians pay an unusually high exchange line charge, equivalent to Pounds 38.78 a month. However, at Pounds 10.28 British Telecom's monthly charge is found to be higher than those in Australia (Pounds 10.21), France (Pounds 9.57), the US (Pounds 8.62), Italy (Pounds 7.70), the Netherlands (Pounds 7.62) and Belgium (Pounds 6.76).

The survey shows UK consumers fare better in long-distance and international calls. They pay less for international calls - Pounds 1.24 for three minutes at average rate - than those in any of the other nine countries, and barely half the going rate in Italy (Pounds 4.41), Italy (Pounds 2.44) and Sweden (Pounds 2.42).

At 27p for three minutes at average rate for trunk calls, BT customers pay less than in all nine other countries except the Netherlands (21p). Germany and France impose the highest charges, 80p and 77p respectively.

Mr Andrew Johns, National Utility Services director, said: 'Having finally won approval from industry watchdog Oftel to rebalance its costs and increase exchange line rentals, it is surprising that BT has not lowered local charges other than through volume discount schemes.'

'Should BT be allowed to maintain its policy of lower prices for volume users, it will no longer be economical for emerging suppliers - especially cable companies - to compete,' he added.

Sweden, included in the annual survey for the first time, is shown to have among the highest charges of the 10 countries surveyed.

Its trunk call and exchange line rental charges are the second highest, and its international calls the third most expensive.

The survey says the fastest evolving telecoms market is Australia's.

Telecoms Price Survey, NUS Ltd, Carolyn House, Dingwall Rd, Croydon CR9 3LX. Pounds 25.

British Telecommunications GB United Kingdom, EC P4813 Telephone Communications, Ex Radio COSTS Service prices P4813 The Financial Times London Page 9 448
Clarke to meet fire unions today Publication 930317FT Processed by FT 930317 By ROBERT TAYLOR, Labour Correspondent

LEADERS OF the Fire Brigades Union are due to meet Mr Kenneth Clarke, the home secretary, this morning to discuss the future of the pay formula that has decided the wages of their 49,000 members for 14 years.

Under the formula drawn up by the last Labour government to end the first national firefighters' strike, their pay is linked to the upper quartile of all male manual workers' earnings.

Last November the firemen secured a 4.9 per cent pay rise as a result of wage comparability, but their union fears the government intends to scrap the pay formula. Fire officers receive between Pounds 12,720 and Pounds 16,626 a year.

'The formula has kept industrial peace for 14 years,' Mr Ken Cameron, the FBU's general secretary, said yesterday. He added that the union would warn Mr Clarke that he faced the threat of another national strike if the pay formula was scrapped.

The pay formula has been suspended since last November under the government's current 1.5 per cent public-sector pay limit.

Mr Cameron says the formula has already 'been unilaterally ditched' as a result of the government's public-sector incomes policy.

GB United Kingdom, EC P9224 Fire Protection PEOP Labour P9224 The Financial Times London Page 9 221
Foremen at Ford strike over job cuts Publication 930317FT Processed by FT 930317 By ROBERT TAYLOR, Labour Correspondent

FOREMEN at Ford plants in Southampton and at Dagenham, east London, went on strike yesterday in protest at the company's threat of compulsory redundancies.

White-collar unions at Ford are due to meet the management next Tuesday to discuss the situation following a ballot vote in support of industrial action by the company's staff.

But a union official said yesterday that his members were 'chomping at the bit' to strike over the compulsory redundancy issue.

Last week Ford backed down and agreed not to press ahead with any compulsory redundancies among its blue-collar labour force as a result of improved demand and adjustments to production targets.

But to the anger of staff, the company has so far refused to withdraw the threat of compulsory redundancies for its white-collar employees.

Management pointed out yesterday it had announced last December that it wanted 2,200 staff jobs to go by the end of this month and it is now only 157 short of that figure. The company said it hoped to achieve the cut in white-collar staff it required without any need for compulsory redundancies.

Ford Motor GB United Kingdom, EC P3711 Motor Vehicles and Car Bodies PEOP Labour P3711 The Financial Times London Page 9 220
DTI issues warning after investigating companies Publication 930317FT Processed by FT 930317 By JIMMY BURNS

THE DEPARTMENT of Trade and Industry yesterday issued a warning to potential borrowers to be cautious about banking documents called Prime Bank Notes.

The warning follows a High Court order winding up a company called Funding Sources International Ltd, made on a petition presented by the DTI's Companies Investigation Board. The company was registered in Cheltenham but had been involved in activities connected to PBNs from a private address in north Devon.

Funding Sources International Ltd is believed to be one of several companies investigated by the DTI after they told clients of their purported ability to raise loans, often running into millions of US dollars. Its director, Mr Howard Curtis, appeared before a magistrates' court in Barnstaple, Devon, last week charged with having failed between May 20 1992 and May 23 1992 to file adequate accounts and provide further information under the Companies Act. Proceedings were adjourned until September 8.

PBNs are purportedly traded as collateral bank documents, against which loans can be secured. DTI investigators found that Funding Sources International had been requiring its clients to pay substantial fees in advance of the purchase of the PBNs. Although advance fees were paid, no loans were made. The DTI said: 'We urge any potential borrower thinking of entering into financing arrangements involving PBNs to satisfy themselves about the legitimacy of all the parties involved and that there is real substance to any loan offer before parting with any money.'

Funding Sources International GB United Kingdom, EC P6159 Miscellaneous Business Credit Institutions COMP Company News GOVT Legal issues P6159 The Financial Times London Page 8 280
Curbs on electricity pricing to be eased Publication 930317FT Processed by FT 930317 By MICHAEL SMITH

OFFER, the electricity indus-try regulator, has indicated to regional companies in the sector that it plans a less rigid price controls system than some in had feared.

Professor Stephen Littlechild, director-general of Offer, has also signalled that, as part of a shake-up of supply price controls, it will allow recs more flexibility in their dealings with large companies.

Offer's latest thinking is outlined in a memorandum to the regional electricity companies as a review of electricity supply controls gets under way in readiness for change in April next year.

It will be welcomed by most regional companies, which will argue that Offer's approach will enable them to tailor contracts more to customers' requirements - for example, by providing long-term contracts at higher prices to the benefit of some buyers.

Large customers, some of which have faced steep price rises since privatisation of the electricity industry three years ago, will be concerned it could lead to further increases.

In the memorandum to regional companies, Offer says it attaches great importance to putting pressure for efficient purchasing on them. It believes 'this can best be achieved by restricting the scope of price control to the franchise market'. The franchise market, where regional companies have a monopoly in the areas they distribute electricity, is restricted to customers who use less than 1MW of electricity in any half-hour period. From April 1994 the threshold will fall to 100kw. Offer says regional companies would be exposed to the 'full pressure of competition in the non-franchise market without the inevitable complications which price control brings'.

For the franchise market, Offer proposes a yardstick approach under which a measure would be made of average costs of units supplied in England and Wales, excluding those covered by coal contracts signed in current negotiations.

The franchise market yardstick would 'both provide a published source of information and act as a trigger for further inquiry on economic purchasing should an individual rec's (regional company) costs exceed the yardstick by a certain amount'.

This suggests that contracts for gas between regional companies and the independent power projects, in which many have equity stakes, will be scrutinised further in spite of the regulator's recent endorsement of the 'dash for gas'.

Nevertheless, the yardstick approach outlined by Offer is considerably less formal than other possibilities though to be under consideration. Under present rules, the price of electricity supplied to all customers can rise only by the level of inflation.

GB United Kingdom, EC P4911 Electric Services P9631 Regulation, Administration of Utilities MKTS Distribution COSTS Service prices P4911 P9631 The Financial Times London Page 8 446
Strikes decline Publication 930317FT Processed by FT 930317

WORKING time lost in Britain through disputes and stoppages has fallen sharply, according to figures from the EC's statistical office in Luxembourg. Only 34 days were lost per 1,000 employees in 1991 compared with 83 in 1990 and 1,278 in 1984.

GB United Kingdom, EC P9611 Administration of General Economic Programs STATS Statistics PEOP Labour P9611 The Financial Times London Page 8 69
London bus staff to meet on tactics Publication 930317FT Processed by FT 930317

REPRESENTATIVES of London bus workers who will hold their second 24-hour stoppage today - will meet later this week to discuss future options.

The bus workers are protesting at management's attempt to buy out existing terms and conditions.

London Buses GB United Kingdom, EC P4141 Local Bus Charter Service PEOP Labour P4141 The Financial Times London Page 8 71
National Grid pay offer of 3.95% Publication 930317FT Processed by FT 930317

MORE than 5,000 electricity workers employed by National Grid have been offered a 3.95 per cent pay rise backdated to February 1, plus one-off payments of between Pounds 700 and Pounds 900 linked to a deal on working practices.

The offer is substantially more than the government's 1.5 per cent pay limit for the public sector and twice the rate of inflation.

It is also more than the PowerGen offer of a 2.5 per cent pay rise plus lump-sum payments of between Pounds 250 and Pounds 550, and last October's National Power deal of 3.9 per cent over 15 months.

National Grid GB United Kingdom, EC P4911 Electric Services PEOP Labour P4911 The Financial Times London Page 8 130
Firefighters to see Clarke today Publication 930317FT Processed by FT 930317

LEADERS OF the Fire Brigades Union are due to meet Mr Kenneth Clarke, the home secretary, today to discuss the future of the pay formula that has decided the wages of their 49,000 members for 14 years.

Under the formula drawn up by the last Labour government to end the first national firefighters' strike, their pay is linked to the upper quartile of all male manual workers' earnings.

Last November the firefighters secured a 4.9 per cent pay rise as a result of wage comparability, but their union fears the government intends to scrap the pay formula.

GB United Kingdom, EC P9224 Fire Protection PEOP Labour P9224 The Financial Times London Page 8 123
Foremen at Ford strike over cuts Publication 930317FT Processed by FT 930317 By ROBERT TAYLOR

FOREMEN at Ford plants in Southampton and at Dagenham, east London, went on strike yesterday in protest at the company's threat of compulsory redundancies, Robert Taylor writes.

White-collar unions at Ford are due to meet the management next Tuesday following a ballot vote in support of industrial action.

A union official said yesterday that his members were 'champing at the bit' to strike over the compulsory redundancy issue.

Last week Ford agreed not to press ahead with compulsory redundancies among its blue-collar workers thanks to improved demand and adjustments to production targets. But the company has refused to withdraw the threat of compulsory redundancies for white-collar employees.

Ford Motor GB United Kingdom, EC P3711 Motor Vehicles and Car Bodies PEOP Labour P3711 The Financial Times London Page 8 143
Government tells the 14 electricity companies to resolve problems Publication 930317FT Processed by FT 930317 By MICHAEL SMITH

THE government has told the 14 electricity companies in England and Wales to resolve by Friday outstanding problems on tentative contracts with British Coal in preparation for a white paper next week, Michael Smith writes.

Its exhortation on proposed deals for 40m tonnes next year and 30m in each of the following years will increase speculation that its coal review will save only a handful of the 31 threatened pits.

National Power and PowerGen, the two generators for England and Wales, have heard nothing substantial from the government for more than two weeks on additional tonnages. This suggests the government wants a tonnage closer to the 40m over five years which the generators have indicated they are comfortable with, rather than the 65.5m the government originally wanted them to take.

At most an additional 40m tonnes would save eight pits and possibly less.

In spite of the electricity companies' expectations, it is possible that the government's timetable has slipped further in the past few days, and the white paper, originally promised for February, will be published next month.

The cabinet is not due to discuss coal tomorrow and it will almost certainly be required to give its approval to any plans following revelations that many ministers were kept in the dark before the original closure decisions last October.

British Coal Corp National Power PowerGen GB United Kingdom, EC P4911 Electric Services P9631 Regulation, Administration of Utilities P1221 Bituminous Coal and Lignite-Surface MKTS Contracts P4911 P9631 P1221 The Financial Times London Page 8 270
Minister warns of tougher pollution penalties Publication 930317FT Processed by FT 930317 By BRONWEN MADDOX, Environment Correspondent

INDUSTRY may face much higher charges for discharging polluted water into rivers, Mr David Maclean, environment minister, said yesterday.

He told the second day of the Financial Times European Water Conference that higher charges for companies abstracting water from rivers were also on the cards.

'A charge based on the amount and type of pollutants discharged to water would give a direct financial incentive for cleaner effluent,' he said. 'Those who polluted least would pay the lowest charge.'

A government report is being prepared giving the options for using financial instruments to curb water pollution.

Present licences for discharging and abstraction, which are issued by the National Rivers Authority, charge in proportion to pollution, but it is allowed only to recover its monitoring costs. The NRA expects to receive Pounds 44m for discharges and Pounds 79m for abstraction in the year to March 1994, but new charges are likely to be much higher.

Mr Guy Liardet of the Chemical Industries Association said yesterday: 'We are very keen to improve our performance and we are keen to play along with government policy provided it is rational, achieves its aims and does not destroy UK industry's competitiveness. We just ask that the chemical industry's pollution is considered in the context of everyone else's pollution, particularly farm waste.

Mr Maclean also said that the government would urge the European Commission, which is reviewing all its water quality directives this year, to accommodate more subsidiarity - allowing countries to decide some of their water standards themselves. 'The Community should exercise a certain humility,' he said.

Water companies should also look at charging households special high tariffs for using water at peak times, according to Mr Chris Mellor of Anglian Water, which covers the region likely to have the greatest shortages of water. The supply of water at peak times was nearly double the average daily level, he said, and supplying the peak demand could account for half of a water company's costs.

Peak-time charges could be applied only to houses fitted with water meters. Anglian, which has introduced compulsory metering to help cut future demand, now has 160,000 metered customers. The present installation charges of Pounds 145 to Pounds 185 could fall as more customers were metered, he said.

Exports of ice cubes are expected to rise, after the water used by a producer in north-west England passed stringent hygiene tests.

The Packaged Ice Company of Fleetwood uses ordinary north-west drinking water in quantities of up to 60 tonnes a day. Its cubes are being sold by the Belgian-owned Multi-Frost chain of frozen food stores.

Further expansion into continental Europe can take place following certification of water quality by the health authorities of France and the Netherlands.

The ice-making company is a subsidiary of the 85-year-old Fylde Ice and Cold Storage Company. The parent diversified into bulk ice cubes in 1986.

Packaged Ice GB United Kingdom, EC P4941 Water Supply P4952 Sewerage Systems P2097 Manufactured Ice RES Pollution COSTS Service costs TECH Standards MKTS Foreign trade P4941 P4952 P2097 The Financial Times London Page 8 528
Mackay delays ruling on barristers' rights Publication 930317FT Processed by FT 930317 By ROBERT RICE, Legal Correspondent

LORD Mackay, the Lord Chancellor, has again postponed a final decision on whether barristers employed by the Crown Prosecution Service and in the Government Legal Service should be given the right to appear as advocates in the higher courts.

Last October the Lord Chancellor (pictured right) and the four senior judges who decide such issues indicated they were not opposed in principle to barristers in the two services having rights of audience in the higher courts, but concluded that the CPS in particular needed more time to overcome initial operating difficulties before taking on the extra responsibility.

As a result the judges decided not to approve permanently a Bar Council rule that bans all employed barristers, including those in the CPS and GLS, from appearing in the higher courts.

They asked the Bar to consider applying this rule only until the end of 1994 so that the issue could be kept under review.

The Bar called on Mrs Barbara Mills QC, director of public prosecutions, and Mr Gerald Hosker QC, the Treasury solicitor, to withdraw their applications for rights of audience for CPS and GLS barristers.

The DPP and the Treasury solicitor urged the Lord Chancellor and the four judges to disapprove the Bar's rule on the basis of an undertaking that they would not seek to exercise wider rights of audience for a period of six months.

The Lord Chancellor and the judges have now decided to postpone a final decision until they are in a position to consider barristers' rights together with the Law Society's application for wider rights of audience for solicitors.

The Law Society applied to the advisory committee last November on behalf of all solicitors including those employed by the CPS and GLS. The Committee is not expected to advise Lord Mackay on the application until later this year.

The Bar welcomed yesterday's announcement. 'The Bar remains opposed on principle to the employment of state prosecutors,' said Mr John Rowe QC, chairman.

GB United Kingdom, EC P8111 Legal Services P9222 Legal Counsel and Prosecution PEOP Personnel News P8111 P9222 The Financial Times London Page 8 366
Sharp fall in days lost by strikes Publication 930317FT Processed by FT 930317

WORKING time lost in Britain through disputes and stoppages has fallen sharply, according to figures from the EC's statistical office in Luxembourg.

Only 34 days were lost per 1,000 employees in 1991 compared with 83 in 1990 and 1,278 in 1984.

Days lost between 1987-91 average 126 per 1,000 employees - a 70 per cent drop compared with the period from 1982 to 86 when Britain had one of the worst records for strikes in the Community.

GB United Kingdom, EC P9611 Administration of General Economic Programs STATS Statistics PEOP Labour P9611 The Financial Times London Page 8 110
London bus staff to meet on tactics Publication 930317FT Processed by FT 930317

REPRESENTATIVES of London bus workers who will be holding their second 24-hour stoppage today - will meet later this week to discuss future options.

The bus workers are protesting at management's attempt to buy out existing terms and conditions. Staff claim that new contracts, introduced ahead of privatisation, will mean cuts of Pounds 30 to Pounds 60 a week on the current average earnings of Pounds 280 and a working week up to five hours longer.

Two thirds of London's buses were off the road last Wednesday because of the first stoppage.

London Buses GB United Kingdom, EC P4141 Local Bus Charter Service PEOP Labour P4141 The Financial Times London Page 8 125
Unpaid tax at Pounds 900m in 1991 Publication 930317FT Processed by FT 930317 By DAVID OWEN

THE INLAND Revenue wrote off nearly Pounds 900m in unpaid taxes in 1991 - an increase of 55 per cent over the previous year, David Owen writes.

The disclosure, covering the latest year for which figures are available, came in a written Commons answer from Mr Stephen Dorrell, financial secretary to the Treasury.

The sum written off in 1990 totalled nearly Pounds 569m, he indicated in reply to Mr Archie Kirkwood, the Liberal Democrat MP for Roxburgh and Berwickshire.

In a separate answer, Mr Dorrell disclosed the findings of an independent survey suggesting that one in three employed taxpayers were dissatisfied with the service received from the Inland Revenue.

A survey conducted by Research International, a market research group in June 1992 found that only 65 per cent of employed and self-employed taxpayers were satisfied.

Mr Dorrell said the Inland Revenue planned to survey other taxpaying groups to establish their present satisfaction levels and service preferences, and to repeat the surveys at 'appropriate intervals'.

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy GOVT Government revenues GOVT Taxes P9311 The Financial Times London Page 8 201
World Trade News: Henan awards power plants Publication 930317FT Processed by FT 930317 By ANDREW BAXTER

China's Henan province has signed a memorandum of understanding with Wing-Merrill International of the US to develop three coal-fired power plants, Andrew Baxter writes.

Two of the plants, each with a capacity of 1,400MW, will be sited near the provincial capital of Zhengzhou and will be built, owned and operated by a joint venture company to be established under the agreement. The third station will be built near Henan's northern border. Members of the consortium include Bechtel, Westinghouse and Riley Stoker from the US.

Wing Merril CN China, Asia P1629 Heavy Construction, NEC MKTS Contracts P1629 The Financial Times London Page 7 118
World Trade News: Czechs and Slovaks join Gatt Publication 930317FT Processed by FT 930317 By FRANCES WILLIAMS GENEVA

The Czech and Slovak republics yesterday signed new accession protocols that will enable the newly separated countries to rejoin the General Agreement on Tariffs and Trade, Frances Williams writes in Geneva.

They ceased to be Gatt members when the former Czechoslovakia, a Gatt founder member in 1948, was dissolved at the end of last year.

CS Czechoslovakia, East Europe SK Slovakia, East Europe P9721 International Affairs GOVT Government News P9721 The Financial Times London Page 7 93
World Trade News: Siemens shares US train order Publication 930317FT Processed by FT 930317 By CHRISTOPHER PARKES FRANKFURT

Siemens, the German electrical engineering group, claimed yesterday that its share in a US order for 350 diesel-electric locomotives provided a firm base for further expansion in the American railways market, Christopher Parkes writes from Frankfurt.

The DM1bn (Pounds 400m) order from Burlington Northern Railroad, one of the biggest rail freight carriers in the US, was the largest single investment in the history of US railways, Siemens said.

The lead contractor will be General Motors' locomotive division, EMD, which will build the engines. The Stuttgart-based group will earn around DM170m, excluding income from licences granted to EMD, from the supply of three-phase alternating current motors. The first eight 4,500 horsepower locomotives will be delivered this year.

Siemens Burlington Northern Railroad US United States of America P3743 Railroad Equipment MKTS Contracts P3743 The Financial Times London Page 7 155
World Trade News: Oman-India gas link plan Publication 930317FT Processed by FT 930317 By MARK NICHOLSON CAIRO

OMAN and India have reached preliminary agreement to build an undersea gas pipeline capable of delivering 50m cubic metres of Omani gas a day to industries on India's west coast, writes Mark Nicholson in Cairo. Gulf oil executives say the deal will be worth around Dollars 4.5bn and could be completed within four years.

The two states have also agreed to build two 120,000 b/d oil refineries in India, with the Omani government partnering India's Hindustan Petroleum and Baharat Oil.

The Oman Oil Company, an arm of the country's oil and finance ministries, is to conduct a feasibility study on the 900km pipeline, which would have to pass over the continental shelf off Iran and Pakistan.

Oil industry officials said a substantial part of the deal was likely to be financed by export credits. Oman has reportedly proposed a 40-year gas supply contract.

Hindustan Petroleum Baharat Oil Oman Oil OM Oman, Middle East IN India, Asia KZ Kazakhstan, East Europe P1629 Heavy Construction, NEC MKTS Contracts P1629 The Financial Times London Page 7 190
World Trade News: Nafta test for Clinton's team - The conflicting demands of trade pact partners and dissident Democrats Publication 930317FT Processed by FT 930317 By NANCY DUNNE

AS President Bill Clinton's trade officials today begin their first important negotiation - over side deals for the North American Free Trade Agreement - they will be walking a fine line between their trading partners' sensitivities and the stiff demands from some members of their own party.

In meetings in Washington with the Mexican and Canadian chief negotiators - Mr Herminio Blanco Mendoz and Mr John Weekes - deputy trade representative Rufus Yerxa will search for a formula to persuade the US Congress that Nafta will not lure US companies south of the border with the promise of cheap labour and weak enforcement of environmental rules.

The negotiators must, at the same time, devise an enforcement mechanism that does not infringe on Mexican sovereignty or, even worse in US eyes, cede to Mexico a part of US sovereignty. Many labour activists believe the US wants no complaints filed in its courts about treatment of migrant Mexican workers by companies or growers north of the border.

Mr Mickey Kantor, US trade representative, hopes to send Nafta to Congress this summer in time to have it implemented as scheduled next January 1. The deal is widely supported by Republicans, but to win over enough Democrats for passage, the president will have to persuade them that it will raise living standards and clean up pollution on the whole continent.

Still, there will be many Democrats such as Mr Craig Merrilees, director of the California Fair Trade Campaign, who supported President Clinton in the election but opposes the Nafta. He believes it is impossible to 'fix' the pact because the administration is unwilling to confront two central dilemmas of the negotiations.

These are the wage differential and the environment. The wage difference between Mexico and its northern neighbours is what Mr Merrilees calls 'the main reason that Nafta exists in the first place'. If the administration attempts to close that wage gap through, for example, strong enforcement of labour right rules, support for the agreement will erode among corporations. The Mexican government will also oppose raising wages because it wants to be as attractive as possible to foreign investors.

'Mexican citizens don't have the right to petition their government,' said Mr Merrilees. 'They don't have due process. Their constitution is regularly violated by a regime that has been in power for 65 years.' In his view, the question is how such a government can be trusted to uphold enforcement promises.

The support of Mr Richard Gephardt, House majority leader, is the most crucial to the Nafta's passage. Just back from a trip to Mexico with Mr Merrilees and other congressmen, he related several environmental horror stories to the House Ways and Means committee last week, including one involving cows, whose milk is sold in Tijuana, dying from lead poisoning.

'The current Nafta will do nothing to stem the tide of pollution that endangers the health, safety and welfare of citizens on both sides of our borders,' he said. 'Nor will it stem the haemorrhage of jobs to Mexico or help recreate the link between productivity and wages by empowering the workers through their unions and their political system.'

The Clinton solution, as defined last week by Mr Kantor would be two trilateral councils on environment and labour, which may have the power to investigate environmental and labour violations.

Last week Mr Kantor was suggesting that public pressure serve in place of a formal enforcement mechanism. But, by yesterday, testifying before a Senate committee, he was promising that the side pacts would have 'teeth at the end of this process'. Pushed to describe how environmental clean-up would be paid for, he talked vaguely in terms of a fund, perhaps capitalised by government and business, or paid for through 'fees'.

If that does not convince sceptics, he has another idea, borrowed from the intellectual property rights section of the current Nafta text. It would require Mexico to change its law, so that citizens could appeal in Mexican courts against decisions from administrative agencies.

The Clinton administration is also considering the possibility of using trade sanctions as an enforcement tool. The use of sanctions - even if Mexico and Canada agree - will not satisfy Mr Merrilees and his colleagues in the labour and environmental movements. However, it may help bring Mr Gephardt on board if Nafta is presented with a strong job retraining programme and a funding mechanism, such as cross-border tax on imports, dedicated to environmental clean-up.

MX Mexico CA Canada US United States of America P9721 International Affairs GOVT Government News P9721 The Financial Times London Page 7 791
World Trade News: Oman and India plan gas line Publication 930317FT Processed by FT 930317 By MARK NICHOLSON CAIRO

OMAN and India have reached preliminary agreement to build an undersea gas pipeline capable of delivering 50m cubic metres of Omani gas a day to industries on India's west coast. Gulf oil executives say the deal will be worth around Dollars 4.5bn and could be completed within four years.

The two states have also agreed to build two 120,000 b/d oil refineries in India, with the Omani government partnering India's Hindustan Petroleum and Baharat Oil.

The Oman Oil Company, an arm of the country's oil and finance ministries, is to conduct a feasibility study on the 900km pipeline, which would have to pass over the continental shelf off Iran and Pakistan.

Oil industry officials said a substantial part of the deal was likely to be financed by export credits. Oman has reportedly proposed a 40-year gas supply contract.

The Oman Oil Company has also signed a deal to link Kazakhstan's biggest oilfield with a coastal terminal. Both deals are part of Oman's attempts to diversify and broaden its hydrocarbons industry.

The gas deal with India would give Oman a reliable local market for its gas, proven reserves of which have doubled in the last two years to 490bn cu m. Oman will also supply crude oil for the two refineries to be built in India.

Hindustan Petroleum Baharat Oil Oman Oil OM Oman, Middle East IN India, Asia KZ Kazakhstan, East Europe P1629 Heavy Construction, NEC MKTS Contracts P1629 The Financial Times London Page 7 264
World Trade News: Japan ire on Cocom 'breaches' Publication 930317FT Processed by FT 930317 By ROBERT THOMSON TOKYO

AN advisory body to Japan's Ministry of International Trade and Industry has accused European and US companies of violating restrictions on exporting sensitive technologies to China.

The Centre for Information on Strategic Technology, comprising industry representatives, said investigations of Chinese factories had identified a range of sophisticated machine tools, exports of which were prohibited by the Co-ordinating Committee for Multilateral Export Controls (Cocom).

In recent years, Japanese technology producers have admitted exporting equipment illegally to the former Soviet Union and Iran, but the industry is angry that Japanese companies should be thought less ready than others to respect Cocom regulations.

The confidential Cistec report describes results of visits to factories in Chinese cities by member companies, which claim to have found banned equipment apparently from US and European producers.

Miti has supported an easing of technology export restrictions, but officials in the Foreign Ministry are concerned that some equipment could be used to help the Chinese army in its ambitious plans to develop high-tech weaponry. This is a view shared by Washington.

JP Japan, Asia P9721 International Affairs GOVT Government News P9721 The Financial Times London Page 7 205
World Trade News: EC seeks to defuse procurement row Publication 930317FT Processed by FT 930317 By LIONEL BARBER BRUSSELS

SIR Leon Brittan, the European Community commissioner for external economic affairs, yesterday intervened to defuse the growing EC-US dispute over government procurement and telecommunications.

Sir Leon announced that the EC was ready to sponsor jointly with the US an independent study to establish 'objective criteria' for the parallel opening of the US and EC procurement markets. The decision to publicise the EC offer was viewed in Brussels as offering Mr Mickey Kantor, the US trade representative, a face-saving compromise so that he can withdraw his threat to bar EC companies from certain federal contracts, starting next Monday.

EC officials said the offer to sponsor an independent report on restrictions to competition created by Buy American and Buy European legislation would have been tabled during talks scheduled this week. But Mr Kantor's unexpected decision to call off the negotiations thwarted the EC initiative.

Sir Leon repeated yesterday his earlier proposal to waive Article 29 of the EC utilities directive which offers a 3 per cent price preference to European companies, on condition that the US makes reciprocal moves to open the US market in transport, power generation and telecommunications. The US is understood to be pressing for a suspension of this article.

A US trade official in Washington said the offer of the study was 'very vague at this point' so Sir Leon has been asked to put the proposal on paper.

However, it is unlikely that the study - even if it is agreed - will stop the imposition of sanctions on schedule. 'There are all sorts of studies already,' the official said. But the 'discrimination' against US suppliers has persisted.

But the British commissioner also warned, that if the US goes ahead with its threat, the EC would view such actions as 'unilateral' and 'unacceptable' and would follow up with appropriate responses.

The EC offer came two days before talks Mr Jacques Delors, European Commission president, is due to hold with President Bill Clinton in Washington.

Tomorrow's meeting offers a chance to defuse the escalation in EC-US trade tensions on steel subsidies, the stalled Gatt Uruguay Round and the procurement dispute as well as to cement a working relationship between the two leaders.

EC officials pointed out that if Mr Kantor proceeds with his threat to bar certain European companies from federal contracts it would be interpreted as a slap in the face to Mr Delors.

QR European Economic Community (EC) P9721 International Affairs GOVT Government News P9721 The Financial Times London Page 7 433
Brazil moves closer to accord on debt: Most banks agree deal but the IMF remains a serious obstacle Publication 930317FT Processed by FT 930317 By STEPHEN FIDLER and CHRISTINA LAMB LONDON, RIO DE JANEIRO

THE restructuring of Brazil's commercial debt moved a step nearer yesterday, with financial institutions owed more than 95 per cent of the country's medium-term bank debt agreeing the proposed accord.

The achievement of this 'critical mass' will trigger payment of about Dollars 150m of interest owed to banks from the first half of last year. Mr William Rhodes, vice-chairman of Citibank, which heads the Brazilian bank steering committee, said the accord was 'doing very well'.

About 800 financial institutions, accounting for almost 97 per cent of the Dollars 44bn of commercial debt, had assented to the restructuring agreement, which allows banks the choice from six options, he said.

Bankers said two issues now had to be tackled:the so-called balance of the deal, and Brazil's relations with the International Monetary Fund.

Demanding balance, Brazil has reserved its right to reopen negotiations if too many banks concentrate on the option that would prove most costly to Brazil, the so-called par bond. Mr Pedro Malan, Brazil's chief debt negotiator said: 'We feel that the demand for par bonds has been a bit excessive.'

Bankers said the deal would need 'rebalancing' but that this process would be easier than in the recent Argentine agreement. Citibank and some other banks had chosen to make some new loans.

The biggest problem remains Brazil's lack of progress with the IMF. A fund delegation yesterday met Mr Eliseu Resende, the new finance minister.

An old IMF agreement is in place until August, and although the government has failed repeatedly to meet its targets, this would formally satisfy the requirements of the commercial debt accord. However, a new fund agreement would release money from the IMF, World Bank and the InterAmerican Development Bank to provide some of the Dollars 3.2bn that Brazil needs for guarantees on instruments to be issued under the accord.

The country could use foreign exchange reserves - a healthy Dollars 20bn - to provide a bridge until new funds from the multilateral institutions arrive.

This is one issue the banks and government are likely to discuss in the weeks ahead.

BR Brazil, South America P9311 Finance, Taxation, and Monetary Policy ECON Balance of payments GOVT Government News P9311 The Financial Times London Page 6 402
Second bite urged at budget deficit Publication 930317FT Processed by FT 930317 By GEORGE GRAHAM WASHINGTON

PRESIDENT Bill Clinton is being urged to plan a second attack on the budget deficit after his current four-year reduction plan, in an attempt to restore competitiveness.

The Competitiveness Policy Council, set up by Congress in 1990, yesterday called for elimination of the federal budget deficit by the year 2000 - or, even better, creation of a budget surplus - as an essential step towards freeing enough savings to finance an expansion in US investment.

Mr Fred Bergsten, director of the Washington-based Institute for International Economics and the council's chairman, welcomed Mr Clinton's economic programme as a first bite at the problem; indeed, the Clinton plan draws in several areas on the council's work. 'We are saying he should have in mind that the first four-year tranche may not be enough.'

In its second annual report, presented to Congress yesterday, the council, which groups leaders from business, labour, government and academia, calls for a central national goal of nearly tripling productivity growth, to at least 2 per cent a year, by the end of the century.

That would require 'increasing national investment by at least 4-6 per cent of GDP, or about Dollars 300bn annually at current prices,' the report says, adding that 'most of the expansion must come from the private sector.'

If this is to be financed internally, instead of by continuing to depend on foreign capital, the council argues, the national savings rate will have to rise by 5-7 per cent.

'Those are ambitious goals, but we think they are doable,' Mr Bergsten said.

As some of the policies advocated by the council would involve increased spending, the report lists options for a future round of spending cuts and tax increases. The US current account deficit climbed back to Dollars 62.4bn last year, with an improved surplus on services partially offsetting a widening merchandise trade deficit and declining income from overseas investments.

US United States of America P9311 Finance, Taxation, and Monetary Policy P9121 Legislative Bodies GOVT Government revenues P9311 P9121 The Financial Times London Page 6 355
Taxing times for Puerto Rico economy: Clinton may soon end company tax incentives Publication 930317FT Processed by FT 930317 By CANUTE JAMES

PRESIDENT Bill Clinton's proposal to eliminate a vital package of tax incentives for US companies investing in Puerto Rico as part of efforts to cut the US federal deficit has led to deep concern on the island and prompted renewed soul-searching over its political future.

Mr Clinton has proposed the elimination of Section 936 of the federal internal revenue code which allows US companies with manufacturing subsidiaries in the US Caribbean possession to return their profits tax-free to the mainland or to deposit profits in local banks without paying any federal taxes on the earnings.

These deposits of about Dollars 15bn (Pounds 10.5bn) have become a pillar of the island's financial stability and the tax incentives have been seen by many as the main fuel for the rapid expansion of Puerto Rico's economy.

The island's rapid industrialisation over the past four decades has clearly been helped by the incentives which, with lower wages, have encouraged dozens of mainland companies to switch production to the island.

Section 936 has been frequently attacked in Washington and it is not surprising that it has become a target in the deficit-cutting exercise. US Treasury officials have repeatedly claimed that the tax breaks cost the federal budget between Dollars 2bn and Dollars 3bn a year.

The president is suggesting that over a five-year period Section 936 be replaced by a 65 per cent tax credit on wages to companies which operate subsidiaries in Puerto Rico. The proposal for ending the incentives follows recent charges by legislators in Washington that pharmaceutical companies have been using the tax breaks to make excessive profits through overcharging for their products.

Puerto Rico has become one of the world's leading producers of pharmaceuticals, accounting for about half the US market. The island's pharmaceutical sector has not been helped by the debate in the US over the high cost of healthcare.

Mr Clinton's proposals have fuelled party political debate in Puerto Rico over the island's future.

The 3.5m people of the island are US citizens, but cannot vote for a president. The island's representation in Washington is limited to a commissioner who has no vote to influence legislation. Puerto Ricans are to vote later this year to determine whether the island will retain its current freely-associated 'commonwealth' status or become a state of the union.

As a fully fledged American state Puerto Rico would no longer be able to benefit from Section 936 and Mr Clinton's proposals may strengthen the arguments of those who support a change to full statehood, led by the incumbent New Progressive party of Governor Pedro Rossello.

Mr Carlos Romero Barcelo, Puerto Rico's resident commissioner in Washington, also says he favours the phase-out of the special incentives and their replacement with wage credits.

The opposition Popular Democratic party however favours a continuation of the political status quo and Mrs Victoria Munoz Mendoza, the party's leader, argues that elimination of Section 936 would lead to widespread unemployment on the island.

While they await the introduction of Mr Clinton's proposals Puerto Ricans are looking to Caribbean neighbours for help. Previous administrations on the island have committed up to Dollars 100m a year of Section 936 deposits in the form of low-interest loans to business projects in other Caribbean countries. Since 1985 Puerto Rico's neighbours have received a total of Dollars 650m of such loans.

Mr Baltasar Corrada del Rio, Puerto Rico' secretary of state, said he expected strong Caribbean support for the defence of the programme which he said had helped to provide 30,000 jobs in Caribbean countries.

US United States of America P9311 Finance, Taxation, and Monetary Policy GOVT Taxes P9311 The Financial Times London Page 6 630
New Jersey setback for US gun lobby Publication 930317FT Processed by FT 930317 By JUREK MARTIN WASHINGTON

THE National Rifle Association, one of the most effective lobbies in the US, now finds itself in the unaccustomed position of losing some legislative battles over gun control.

On Monday, the New Jersey senate refused to repeal a state law which bans the sale of semi-automatic handguns and gives the 300,000 owners of such assault-style weapons a year in which to sell them out of state, disable them or turn them into the police.

The New Jersey law is among the country's toughest gun control measures. Proposed by Democratic Governor Jim Florio, it was enacted in 1990 by the legislature, then in Democratic hands.

It seemed ripe for repeal when Republicans took over the state's two houses, which repealed the bill last August. Mr Florio vetoed the repeal, but was himself overruled in the lower house. Intensive lobbying by the NRA seemed likely to induce the senate also to override the veto, but in the event it voted 26-0, with 12 abstentions and two absentees, to sustain the governor.

A local NRA official said the fight for repeal would continue in this November's gubernatorial and state elections. He promised to raise Dollars 100 from each of the NRA's 600,000 members in the state and to use the funds in particular against those Republican senators who had 'betrayed' the cause.

Instant post-mortems in Trenton, New Jersey's capital, were that the NRA had overplayed its lobbying hand. Other factors cited included public unease over the current siege outside Waco, Texas, of a heavily-armed religious cult and many other instances of random violence.

Earlier this year, the Virginia legislature passed into law, again over heavy NRA resistance, a measure limiting the purchase of handguns by any individual to one per month, unless special permission to buy more is obtained from the police. Virginia was one of the easiest states in which to purchase guns.

The NRA was also embarrassed last week when it was forced to fire one of its senior lobbyists in Washington for having spread unsubstantiated rumours that Ms Janet Reno, the new attorney general and a staunch advocate of gun control, had been arrested, though never charged, on suspicion of drunken driving.

Interviewed on television, Mr Wayne La Pierre of the NRA's national headquarters, advanced his organisation's standard line that gun control was not the way to attack crime in the country either at state or federal level. He argued against the pending Brady handgun control bill favoured by President Bill Clinton and soon to be considered again by Congress, and in favour of building more prisons and tougher jail sentences.

He was particularly critical of the provision of the New Jersey law requiring existing owners of assault weapons to disable them or turn them in. This, he said, meant that 300,000 citizens of New Jersey had been branded de jure 'criminals.'

US United States of America P5941 Sporting Goods and Bicycle Shops GOVT Regulations MKTS Distribution P5941 The Financial Times London Page 6 510
Brother's attacks pull the plug on Collor's election ambitions Publication 930317FT Processed by FT 930317 By CHRISTINA LAMB RIO DE JANEIRO

ATTEMPTS by Brazil's former President Fernando Collor to recover his rights to stand as a candidate in next year's elections are being thwarted by a flood of fortune-seeking books by his vengeful younger brother and former aides about the torrid world of drugs, adultery and black magic that allegedly marked his presidency.

With the Supreme Court due to decide within two weeks whether to proceed with criminal charges against the former president, removed in impeachment proceedings over corruption charges, Mr Collor's last shreds of honour are being stripped away by the revelations now rocking Brazil in the latest episode in the Cain and Abel saga between the two Collor brothers.

Mr Collor has pleaded for people to ignore the damning extracts being published in the Jornal do Brasil from a book by his brother Pedro whose denunciations last year led to the president's downfall.

A handwritten letter from Mr Collor to the media accused his brother of being 'sick in body and soul,' adding: 'Isn't it enough that they have taken away my political rights, my happiness, my peace. . . for the love of God, stop this]'

There is very little that Pedro does not accuse his brother of in his book which he says 'will make the whole world question how such a person could become president of Brazil.' In the first two extracts alone he claims that while in office the president and his wife Rosane were cheating on each other - both with men - and that Rosane blackmailed Mr Collor by threatening to reveal his alleged cocaine addiction and wife-battering tendencies.

Pedro goes on to detail black magic sessions by the first couple and Rosane's mother in which they jabbed pins into models of their enemies. Pedro also claims the presidential couple sacrificed goats and chickens and danced round them in daily ceremonies to try to ward off impeachment.

Pedro's book is not the only one doing the rounds. In 'A Thousand Days of Solitude' by Mr Claudio Humberto, Mr Collor's loyal ex-spokesman, Pedro is the mentally imbalanced villain who shoots at the refrigerator when he cannot find the cheese.

Although Pedro is not regarded as the most credible source, any hope of Mr Collor's imminent return to public life is likely to be dashed by the revelations which have led news items throughout Latin America.

BR Brazil, South America P9111 Executive Offices PEOP Personnel News GOVT Legal issues Collor, F Former President Brazil P9111 The Financial Times London Page 6 437
Beijing unleashes fury on Patten Publication 930317FT Processed by FT 930317 By TONY WALKER and SIMON HOLBERTON BEIJING, HONG KONG

HONG KONG'S governor Chris Patten came under vituperative attack yesterday in the People's Daily, newspaper of the Chinese Communist party.

Singling out Mr Patten's observation that it 'takes two to tango' in reference to stalled negotiations on Hong Kong's future, the party newspaper charged that 'tango dancing has made Chris Patten's head dizzy and speech incoherent'.

'Just as Hong Kong was going on a road of peaceful transition, God knows how, there comes a Chris Patten,' the paper said. 'We'd like to warn this shameless politician to stop his clumsy show. Mr Patten, the tango dancer, come back to your senses.'

Beijing has been infuriated by Mr Patten's gazetting last Friday of proposed legislation aimed at extending Hong Kong's democratic reforms. It has charged that this marks a betrayal of earlier agreements reached with Britain on a smooth transition to Chinese rule in 1997.

British officials in Beijing said they were waiting for the dust to settle on almost constant attacks levelled against Mr Patten since last Friday before making judgments about possible diplomatic moves to quieten the tempest.

In Hong Kong a senior official of Bank of China warned that the colony's economy would suffer from 'the instability' Mr Patten's reforms would bring to Hong Kong. Mr Lin Gunagzhao, the bank's deputy director, said Hong Kong's real growth rate could be cut by up to 1 percentage point this year from the 5.5 per cent the Hong Kong government forecast in its budget.

Mr Lin said he feared the stock and property markets would be affected by the current political uncertainty. 'The knock-on effects caused by the influence on the property sector will spread to even wider areas.'

Mr Patten was, however, unbowed yesterday. After a meeting of his Executive Council, or quasi-cabinet, he said the government planned to continue working for the interests of ordinary people in Hong Kong. He said he would continue to discuss the future of Hong Kong 'positively and constructively'.

In an implicit criticism of Mr Li Peng, China's prime minister, who on Monday launched a vehement attack on the government, Mr Patten said: 'I don't intend to use the sort of language which is very often being used about Hong Kong by others.'

The stock market has seen steep falls in share prices over recent days as investors took fright at China's criticism of Mr Patten's reforms. Stock market analysts said that in the absence of these attacks there would probably have been a rise in share prices.

Yesterday the market recovered some of the losses sustained in trading last Friday and on Monday. The Hang Seng Index rose 125.43 points, or more than 2 per cent, to end at 5,980.04.

Government figures also showed a strong rebound in property market transactions in February when turnover rose 105.6 per cent from January's exceptionally low level. Property transactions in the first two months of 1993 were 5.3 per cent up on that same period last year.

HK Hong Kong, Asia CN China, Asia P9121 Legislative Bodies P9721 International Affairs P6231 Security and Commodity Exchanges GOVT Draft regulations MKTS Market data P9121 P9721 P6231 The Financial Times London Page 4 544
Seoul plays down N Korean tension Publication 930317FT Processed by FT 930317 By JOHN BURTON SEOUL

SOUTH KOREAN defence officials said yesterday they had not detected any unusual military activity in North Korea in spite of the country being placed on a 'semi-war' footing last week.

Pyongyang took the step in response to the large US-South Korean Team Spirit military exercise, while also withdrawing from the nuclear non-proliferation treaty.

The Seoul officials said military movements in North Korea were consistent with battle mobilisation measures taken in reaction to previous Team Spirit exercises, which have been held since 1976.

Mr Kwon Young-hae, South Korean defence minister, told the National Assembly that Seoul had consulted Washington on the possibility of some of the US troops taking part in Team Spirit staying in South Korea after the exercise ends tomorrow. But defence officials said if North Korean military activity remained normal, this request was unlikely to be made. The US military command in South Korea said there was no change so far in plans to take the 55,000 US troops mobilised for Team Spirit from the country.

The exercise tests US ability to reinforce its 38,000 troops in South Korea in the case of war.

North Korea has routinely condemned such exercises as a threat to its security and by putting troops on increased alert. Pyongyang has also used the exercises as a pretext to break off previous negotiations with Seoul about nuclear inspections.

The Team Spirit exercise this year coincided with the International Atomic Energy Agency's demand that North Korea let it inspect two suspected nuclear facilities by March 25 or face possible economic sanctions by the UN.

KR South Korea, Asia KP North Korea, Asia P9711 National Security P9721 International Affairs GOVT Government News P9711 P9721 The Financial Times London Page 4 300
Official version of history upheld Publication 930317FT Processed by FT 930317 By ROBERT THOMSON TOKYO

JAPAN'S Supreme Court has ended a 31-year dispute by ruling that the Ministry of Education has the right to change textbooks to ensure that a 'standardised' version of history is taught in schools.

The ruling ends a legal challenge by a former Tokyo professor whose text, A New Japanese History, was rejected in 1962 by the ministry, essentially because it contained a blunt assessment of Japan's military aggression in Asia during the 1930s and 1940s.

China and South Korea have complained that the education ministry's control over textbooks and its use of euphemism to describe wartime brutality have left Japanese ignorant of the past.

Mr Saburo Ienaga, 79, a former professor at the Tokyo University of Education, said the rejection of his case against the ministry violates the Japanese constitution by allowing the government unrestricted power to censor school texts. 'This decision makes me very angry. I think it is very disappointing for Japan,' said Mr Ienaga, who was appealing against a lower court decision to dismiss a Y1.9m (Pounds 11,000) suit filed by him against the ministry.

Passages of the high school text rejected by the ministry include a description of the Japanese army's advance as 'reckless', and comments that 'the war was glamorised'.

The Supreme Court ruled that the ministry had the right to recommend changes or disqualify texts from school lists as long as its decisions are 'reasonable', and that its reservations about Mr Ienaga's history book were reasonable. However, the court warned the ministry that its power to alter texts should be used selectively.

Ms Mayumi Moriyama, the education minister, said the court's ruling was welcome because the ministry should retain the right to determine the content of school texts and standardise history lessons, though this power must be used 'appropriately'.

In a 1974 ruling, the Tokyo District Court awarded Mr Ienaga Y100,000 after judging that 19 of the ministry's 200 objections to his work were unfair. But in 1986 the Tokyo High Court overturned that ruling.

JP Japan, Asia P9411 Administration of Educational Programs TECH Standards GOVT Legal issues P9411 The Financial Times London Page 4 365
Violence in Israel hits peace hopes Publication 930317FT Processed by FT 930317 By ROGER MATTHEWS

ISRAELI troops shot dead two Palestinians and wounded more than 70 yesterday, as intensified violence in the occupied territories cast a deeper shadow over the prospects for a resumption of Middle East peace negotiations.

The mood in the occupied territories and Israel itself contrasts strongly with the upbeat assessment of the peace process by President Bill Clinton and Mr Yitzhak Rabin, Israel's prime minister, after more than three hours of talks at the White House on Monday.

A spokesman for Mr Rabin said he would return three days earlier than expected from the US to address the problem of worsening violence.

The clashes yesterday between Palestinian demonstrators and Israeli troops at the Khan Younis refugee camp in Gaza were said to be the worst since the outbursts that followed deportation of 415 Palestinians by Israel to southern Lebanon in December.

Palestinian negotiators insist they will not resume peace talks until Israel makes a public commitment not to resort to further mass deportations.

Hospital officials said that two Palestinian youths, aged 17 and 18, were killed in the Khan Younis refugee camp. Israeli troops opened fire several times on stone-throwing Palestinians who had taken to the streets after the lifting of a curfew on the camp. The latest clashes come against deepening concern in Israel over attacks on Jewish civilians by individual Palestinians.

IL Israel, Middle East P9229 Public Order and Safety, NEC PEOP Personnel News GOVT Legal issues P9229 The Financial Times London Page 4 259
Iranian exile shot dead Publication 930317FT Processed by FT 930317 By ROBERT GRAHAM

Mr Mohammed Hussein Nagdi, a prominent figure in the Iranian exiled opposition, was shot dead in Rome yesterday by two unidentified gunmen, writes Robert Graham.

The killing was denounced by the Iranian opposition as the work of agents of the Tehran government.

IR Iran, Middle East P8651 Political Organizations PEOP Personnel News GOVT Legal issues P8651 The Financial Times London Page 4 74
Gunmen kill ex-minister Publication 930317FT Processed by FT 930317 By AP

A former minister was shot dead as he left his home in suburban Algiers yesterday, AP reports. The official Algerian news agency APS said Mr Djilali Liabes, 45, was shot at his home in Ben Omar in south-east Algiers by three gunmen who fled. Ben Omar is a stronghold of Moslem fundamentalists, who have faced a government crackdown for more than a year.

DZ Algeria, Africa P9121 Legislative Bodies PEOP Personnel News GOVT Legal issues P9121 The Financial Times London Page 4 92
Bomb blasts Egyptian tour buses Publication 930317FT Processed by FT 930317 By MARK NICHOLSON CAIRO

A BOMB explosion damaged seven empty tour buses parked yards away from the Egyptian Museum in Cairo's busiest square yesterday, one of a series of attacks a week after Egyptian security forces launched a tough crackdown on suspected Islamic militants, writes Mark Nicholson in Cairo. Tourists had left the buses for the Egyptian Museum, , just 100 yards away. No one claimed responsibility. It appeared a defiant gesture from Islamic militants who have waged sporadic attacks on tourist targets for much of the past year.

EG Egypt, Africa P9229 Public Order and Safety, NEC PEOP Personnel News GOVT Legal issues P9229 The Financial Times London Page 4 121
Peace hopes hit by violence in Israel Publication 930317FT Processed by FT 930317 By ROGER MATTHEWS JERUSALEM

ONE Palestinian was killed and more than 60 suffered bullet wounds in Gaza yesterday as intensified violence in the occupied territories cast a deeper shadow over prospects for a resumption of Middle East peace negotiations.

The mood in the occupied territories and Israel itself contrasts strongly with the upbeat assessment of the peace process provided by President Bill Clinton and Mr Yitzhak Rabin, Israel's prime minister, after more than three hours of talks at the White House on Monday.

A spokesman for Mr Rabin said he would be returning three days earlier than expected from the US in order to address the problem of worsening violence.

The clashes yesterday between Palestinian demonstrators and Israeli troops at the Khan Younis refugee camp in Gaza were said to be the worst since the outbursts which followed the deportation of 415 Palestinians by Israel to southern Lebanon in December.

Palestinian negotiators insist they will not resume peace talks until Israel makes a public commitment not to resort to mass deportations.

Mr Clinton said on Monday that the deportation issue had already been dealt with and had not featured in his talks with Mr Rabin. This further angered the Palestinians and Mrs Hanan Ashrawi, the spokeswoman for the negotiating team, said it was a mistake for the US and Israel to think they could just push the issue to one side.

In Gaza, doctors said that a 17-year-old boy died after being shot in the chest.

At least 10 Israelis and 58 Palestinians have been killed since the upsurge in violence provoked by the expulsion of the 415 Palestinians.

IL Israel, Middle East P9229 Public Order and Safety, NEC PEOP Personnel News GOVT Legal issues P9229 The Financial Times London Page 4 304
China reduces deficit and increases defence spending Publication 930317FT Processed by FT 930317 By TONY WALKER BEIJING

CHINA'S budget deficit would reach Yuan 84.4bn (Dollars 14.7bn) for 1993, a slight decrease on the actual deficit recorded last year, Mr Liu Zhongli, finance minister, announced yesterday. He also pledged an increase in defence spending of 12.4 per cent to Dollars 7.5bn.

Speaking on the second day of China's National People's Congress, or parliament, Mr Liu said mismanagement and waste in state-run organisations and a shortfall in tax revenues had contributed to 'great financial difficulties.'

Some two-thirds of China's state-owned industries, which account for about 50 per cent of industrial production, racked up huge losses last year, adding to burdens on the exchequer. Last year's deficit reached Yuan 90.49 (Dollars 15.7bn), or about five per cent of GNP. The 1992 deficit represented an increase of 24.6 per cent on the previous year.

Mr Li said total revenues this year were expected to reach Yuan 452.23bn (Dollars 78.6bn), an increase of eight per cent over 1992. Expenditures were projected at Yuan 472.7bn (Dollars 82.2bn), up 6.8 per cent.

This year's boost to defence spending will mark the fourth year in a row that the military will receive a substantial increase; however, published expenditures for the services account for only a relatively small proportion of the actual cost of maintaining China's offensive capability.

Mr Liu also announced increased spending of about 9.8 per cent on education and 10.8 per cent on science and technology.

Investment in agriculture will increase by 9.3 per cent.

Chinese officials also outlined planning targets for the coming year based on anticipated growth in gross national product of 8 per cent.

Mr Zou Jiahua, the vice premier in charge of the state planning commission, said these estimates were conservative and it was 'expected they would be exceeded in implementation.'

Mr Zou said the demands of new investment would continue to drive the economy in 1993. He predicted that activity would continue to be 'rather brisk.' China registered economic growth last year of 12.8 per cent.

Mr Zou reported that in 1992 committed foreign investment in China doubled compared with the previous year. China absorbed Dollars 11bn of foreign funds, and approved 47,000 foreign-funded enterprises in 1992, more than the total of the previous dozen years.

On Monday, Mr Li Peng, the premier, forecast growth in the remaining years of the 1991-95 five-year plan of 8-9 per cent. This would enable China to achieve its goal with time to spare of quadrupling GNP between 1980-2000.

Ministers yesterday also revealed more details of a comprehensive restructuring of ministries and government departments to reduce duplication and waste. A number of ministries will either go or be merged, and staff slashed across the board.

The NPC, which will meet for the next two weeks, will endorse constitutional changes, and approve the appointment of new personnel, including a head of state and several vice premiers.

CN China, Asia P9311 Finance, Taxation, and Monetary Policy GOVT Government revenues GOVT Government spending ECON Gross national product P9311 The Financial Times London Page 4 515
Bomb blast damages tourist buses in Egypt Publication 930317FT Processed by FT 930317 By MARK NICHOLSON CAIRO

A BOMB explosion damaged seven empty tour buses parked yards away from the Egyptian Museum in Cairo's busiest square yesterday, one of a series of attacks a week after Egyptian security forces launched a tough crackdown on suspected Islamic militants.

Tourists had left the buses for the Egyptian Museum, one of Cairo's most popular attractions, just 100 yards away. No one claimed responsibility. But it appeared a defiant gesture from Islamic militants who have waged sporadic attacks on tourist targets for much of the past year - considerably hurting Egypt's precious tourism earnings.

The explosion took place during the midday rush in Tahrir Square, scene last month of a coffee-shop bombing which killed three. It came in the teeth of tightened security at all Egypt's tourist centres and intensified operations against suspected members of the Gama'a al-Islamiyya, the underground Islamic group behind most recent attacks. Bus drivers in Tahrir Square said their vehicles had been searched for bombs just 30 minutes before the blast.

An explosive device was also defused in a building housing 'foreign experts' in a Cairo suburb, according to the semi-official al-Ahram news agency.

The US embassy on Monday called in around 40 members of the US business community to discuss security, following a threat earlier this month by Gama'a al-Islamiyya to attack foreign investments. The embassy stressed only that businesses should step up routine precautions.

EG Egypt, Africa P9229 Public Order and Safety, NEC PEOP Personnel News GOVT Legal issues P9229 The Financial Times London Page 4 267
S African budget must address conflicting aims: The harsh constraints on Derek Keys as he presents his plans today Publication 930317FT Processed by FT 930317 By PHILIP GAWITH

MR Derek Keys, an accomplished bridge player and a self-acknowledged 'deal-maker', will be hard pressed to pull any tricks from the dog-eared fiscal hand he has been dealt when presenting South Africa's budget to parliament this afternoon.

Expectations of the country's finance minister are high. It is a measure of the importance of today's budget that it has managed to overshadow, in recent days, the country's normal political preoccupations.

And while taxation changes will enjoy the normal close scrutiny, the focus of attention will be on the bigger picture. Observers are hoping Mr Keys's first budget, and probably the National party's last, will mark a new era in the management of government finances.

In this sense, it is the second instalment in a two-part package. Last week saw the long awaited release of the government's economic restructuring plan - a 305-page document which details the dramatic changes required if South Africa is to achieve the sort of economic growth necessary to finance the developmental challenges it faces.

Mr Keys, former chairman of the mining house Gencor, needs to breathe some life into an economy moribund after four years of recession, and start the long-term task of economic restructuring.

The past months, however, have seen the minister also place considerable stress on two other goals - reducing the deficit and stimulating growth - which are not only in conflict with each other but, at least in the case of stimulating growth, clash with the longer-term restructuring aims.

Reconciling these goals, stimulatory against contractionary, would be difficult at the best of times. These, however, are not the best of times and Mr Keys faces constraints which will severely limit his room for manoeuvre. Chief among these are the weak state of the economy - showing no signs of an upturn after four years of recession - and a budget deficit for fiscal 1992-93 likely to be in the order of 9 per cent of gross domestic product.

Perhaps the best that Mr Keys can hope for is that he presents a budget which enjoys credibility. First, and most obvious, he will have to come up with a credible set of numbers. Revenue and spending estimates made by the government in recent years have been woefully inept. The challenge this time will be to produce a deficit reduction plan which is not premised on heroic and unachievable cuts in government spending, and pie-in-the-sky estimates of economic growth.

Best estimates suggest the budget deficit target is likely to be R25bn (Pounds 5.6bn), or 6.5 per cent of GDP. Less than that would not only stretch the credulity of the bond markets, but would also risk aggravating the current recession. The reduction is most likely to be achieved through a real decline in government spending - cert-ainly in the consumption component - and an increase in the VAT rate, probably to 13 per cent from 10 per cent now.

Second, he will be required to prove the government's commitment to restructuring, as outlined last week, by making a serious attempt to implement these goals. A good start has already been made with the government standing firm in its refusal to offer civil servants - whose wage bill is more than half of all state spending - a wage increase of more than 5 per cent.

Finally, and perhaps most important, his budget will have to enjoy credibility with the African National Congress, the main black political grouping, and its trade union ally Cosatu. Without their support - or, at least, the absence of outright opposition - sane economic management in South Africa is impossible. Mr Keys has acknowledged this, so it can be expected that he will go to some lengths to put a 'human face' on the budget, stressing its developmental as well as its growth features.

With unsurprising rhetoric, both the ANC and Cosatu have branded the budget an 'apartheid budget'. But they have come closer to putting their finger on a matter of real public concern in focusing on the expenditure side of the budget. To a large extent Mr Keys has been a supply-side minister, his efforts devoted to improving the growth capacity of the economy. In recent months, however, a flood of revelations about government corruption and maladministration have given South Africans the impression of a 'gravy train' for those in state service.

Most businessmen and taxpayers would endorse the ANC's calls for performance auditing and greater transparency in the spending of public money. The public mood demands that Mr Keys try to show that the government is getting value for money from its spending.

For business and consumers, while he will not shirk delivering some tough messages, he will also be doing his utmost to stimulate confidence. Finding this trump card, though, will test even Mr Keys's ingenuity.

ZA South Africa, Africa P9311 Finance, Taxation, and Monetary Policy GOVT Government News ECON Gross domestic product P9311 The Financial Times London Page 4 850
Seoul plays down N Korea tension Publication 930317FT Processed by FT 930317 By JOHN BURTON SEOUL

SOUTH KOREAN defence officials said yesterday they had not detected any unusual military activity in North Korea in spite of the country being placed on a 'semi-war' footing last week.

Pyongyang took the step in response to the large US-South Korean Team Spirit military exercise, while also withdrawing from the nuclear non-proliferation treaty.

The Seoul officials said current military movements in North Korea were consistent with battle mobilisation measures taken in reaction to previous Team Spirit exercises, which have been held since 1976.

Mr Kwon Young-hae, South Korean defence minister, told the National Assembly that Seoul had consulted Washington on the possibility of some of the US troops taking part in Team Spirit staying in South Korea after the exercise ends tomorrow.

But defence officials said if North Korean military activity remained normal, this request was unlikely to be made.

The US military command in South Korea said there was no change so far in plans to take the 55,000 US troops mobilised for Team Spirit from the country.

The exercise tests US ability to reinforce its 38,000 troops in South Korea in the case of war.

North Korea has routinely condemned such exercises as a threat to its security and by putting troops on increased alert. Pyongyang has also used the exercises as a pretext to break off previous negotiations with Seoul about nuclear inspections.

The Team Spirit exercise this year coincided with the International Atomic Energy Agency's demand that North Korea let it inspect two suspected nuclear facilities by March 25 or face possible economic sanctions by the UN Security Council.

The decision to place North Korea on a 'semi-war' footing on March 9, the day Team Spirit began, was made by Mr Kim Jong-il, son of President Kim Il-sung and his designated successor, according to Naewoe, the South Korean agency that monitors North Korean news.

Mr Li Chol, North Korean ambassador at the UN in Geneva, said his country might reverse its decision on withdrawing from the nuclear non-proliferation treaty if the US permanently suspended Team Spirit, according to Japan's Kyodo News Service.

He also said the IAEA should 'stop obeying the only superpower', meaning the US, and that it should operate in an impartial manner.

He suggested that the IAEA had made its demand for a special inspection of the North Korean nuclear facilities on US orders.

KR South Korea, Asia KP North Korea, Asia P9711 National Security P9721 International Affairs GOVT Government News P9711 P9721 The Financial Times London Page 4 431
Japan plans second growth boost Publication 930317FT Processed by FT 930317 By CHARLES LEADBEATER TOKYO

THE Japanese government will announce a second emergency package to stimulate the depressed economy before Mr Kiichi Miyazawa, the prime minister, visits Washington in mid-April for talks with President Bill Clinton.

Leaders of the ruling Liberal Democratic party confirmed the plan to outline a supplementary budget before the visit. The move, which follows a Y10,700bn (Pounds 62.5bn) emergency package of public works spending announced last autumn, reflects the mounting domestic and international pressure on Japan to stimulate its economy.

The Japanese economy grew by only 1.5 per cent last year, according to official figures last week. Most companies are expecting a third year of falling profits for the financial year to the end of this month.

Meanwhile, the US is likely to intensify pressure on Japan to boost demand for imports to cut its ballooning trade surplus, which last month grew by 3.7 per cent from the year before to stand at Dollars 10.55bn (Pounds 7.4bn), according to government figures published yesterday.

Although a further stimulus has been widely foreshadowed, details of the plan are far from agreed.

Mr Seiroku Kajiyama, the LDP's secretary general, said the package would have to be worth more than last year's Y10,700bn. LDP leaders feel a higher figure will be needed to meet foreign demands and head off mounting US pressure over trade issues.

The finance ministry opposes such a large package. It is thought to favour a more limited stimulus of between Y6,000bn and Y8,000bn.

The contents of the package are also far from agreed. Support for an income tax cut, which was strongly backed by retailers, has waned over the past few weeks.

Instead the package is likely to focus on tax cuts for housing and small business investment, combined with higher spending on social infrastructure projects such as hospitals and schools. Universities and schools budgets to buy computers will be expanded, in part to help the ailing electronics industry.

Different wings of the LDP and several ministries are fighting over plans for government investment to upgrade the telecommunications infrastructure. Competing plans are being put forward by the ministries of posts, trade and industry, construction and transport. The Finance Ministry opposes government subsidies for telecommunications investment, arguing that such measures should be funded by NTT, the privatised telecommunications group.

The rise in Japan's trade surplus for February was mainly caused by a sharp drop in the value of imports, which fell by 2.8 per cent, while exports fell by 0.5 per cent mainly because exports to Europe were 14.4 per cent down on the same month last year.

JP Japan, Asia P9311 Finance, Taxation, and Monetary Policy P9611 Administration of General Economic Programs GOVT Government spending GOVT Taxes ECON Balance of trade P9311 P9611 The Financial Times London Page 4 472
Iran exile shot dead Publication 930317FT Processed by FT 930317 By ROBERT GRAHAM

MR MOHAMMED Hussein Nagdi, a prominent figure in the Iranian exiled opposition, was shot dead in Rome yesterday by two unidentified gunmen, writes Robert Graham.

The killing was denounced by the Iranian opposition as the work of agents of the Tehran government. The murder was condemned by the Italian foreign ministry and members of parliament, who pointed out the Iranian opposition not been as active in Italy as in France, the UK and Germany.

Before the Iranian revolution, Mr Nagdi worked in the Rome embassy.

IR Iran, Middle East P8651 Political Organizations PEOP Personnel News GOVT Legal issues P8651 The Financial Times London Page 4 117
New killing in Algiers Publication 930317FT Processed by FT 930317 By AP

A FORMER minister was shot dead as he left his home in suburban Algiers yesterday, AP reports.

The official Algerian news agency APS said Mr Djilali Liabes, 45, was shot at his home in Ben Omar by three gunmen who fled. Ben Omar is in south-east Algiers near Kouba, a stronghold of Moslem fundamentalists, who have faced a tough government crackdown for more than a year.

Mr Liabes was recently named head of the 'Group of Experts 2015', to draw up a study on Algeria's future.

DZ Algeria, Africa P9121 Legislative Bodies PEOP Personnel News GOVT Legal issues P9121 The Financial Times London Page 4 116
Assemble Nationale (Elections '93): Socialists to pay price of jobs failure - Persistent unemployment is the big issue in the French election Publication 930317FT Processed by FT 930317 By DAVID BUCHAN

IF THERE is one overwhelming reason why France's Socialist ministers seem certain to lose their jobs in this month's parliamentary election, it is the country's unemployment rate, standing at 10.5 per cent in January and expected to go higher.

This issue has occupied more broadcast airtime and filled more newspaper column inches than any other in the campaign. All the more so because the mainstream parties are not united within themselves on the best prescription for unemployment - although, broadly, the right wants to cut labour costs while the left prefers work-sharing.

Only on the extremes are simple solutions offered. Mr Georges Marchais, the Communist party leader, plugs on for a reduction in the working week from 39 to 35 hours with no cuts in pay, while Mr Jean-Marie Le Pen, the National Front leader, blames immigrants for displacing French workers.

France's unemployment rate is no worse than Britain's or Italy's, and better than Spain's, despite some calculations by the opposition. The latter claims the true number of jobless is nearly double the 2,992,600 recorded in January. To arrive at a total of 5m-6m French citizens 'excluded' from the labour market, they include not only young people in government short-term work schemes but everyone drawing welfare payments.

Yet France has special problems. One is that its unemployment rate seems to rise just as fast as other countries' in bad economic times, but to fall far less during good times. Its jobless rate hit 10.5 per cent in 1987, but in the three following boom years, it fell only 1.5 percentage points, compared to a 3-point drop in (western) Germany and a 5-point fall in Britain.

Predictably, this puts a high share (30 per cent at present) of people into the category of the long-term unemployed, defined as those without a job for more than a year. When he took office last April, Prime Minister Pierre Beregovoy made a bold, not to say rash, promise to take all long-term unemployed (some 900,000 at the time) off the dole queues within six months.

Virtually all the long-term jobless were given in-depth interviews. Some found a place in the labour market and many others were put in training schemes. But it was like trying to keep the Atlantic out with a mop. By November, for every person taken off the dole, someone else had fallen into their 13th month of unemployment.

Another black spot is youth unemployment. Of those under 25, one in five is without a job. Part of the blame lies with France's generally excellent school system, which reserves technical and vocational training for those who have passed its all-round educational tests. Hence, tailoring a more specific apprenticeship system to France's unemployment as well as industrial needs has been a big theme of the campaign.

A study published by the Paribas bank yesterday claims that the country's guaranteed minimum wage, known as the SMIC, is in large part responsible for pricing the least qualified workers out of the job market. It notes that the SMIC has doubled in real terms over the past 20 years, rising far faster than average pay.

When he was finance minister, Mr Beregovoy suggested a lower SMIC for young workers. But he got no support from fellow Socialists, and even the opposition has steered away from altering the minimum wage.

But the opposition has attacked the French system of loading most of the cost of the welfare system not on general income tax but on company payrolls. These 'social charges' can add an extra 40 per cent to the cost for an employer of taking on a new worker. The opposition's general thrust has been to call for these charges to be gradually transferred to the national budget and financed out of general taxation. But, in the short term, the RPR Gaullists and centre-right UDF disagree over precisely how to do this without increasing the already swollen budget deficit.

Virtually the only new Socialist theme during the campaign has been work-sharing, the idea of spreading available work around more people. Mr Jacques Chirac, the RPR leader, has ridiculed this as unfeasible because those in existing jobs will not accept less pay for less work. Most Socialists, including Mr Chirac's expected presidential challenger in 1995, former prime minister Mr Michel Rocard, have conceded that work-sharing would mean pay cuts. But others point out that extra productivity can both maintain pay rates and increase employment.

One result of the debate about unemployment has been initiatives by employers, such as that by the AXA insurance company in suggesting employment for life in return for flexible work patterns and lifetime training.

See Editorial Comment

FR France, EC P9611 Administration of General Economic Programs ECON Employment & unemployment P9611 The Financial Times London Page 3 824
Serb leader pledges to let convoys pass Publication 930317FT Processed by FT 930317 By ROBERT MAUTHNER, Diplomatic Editor

MR Radovan Karadzic, the Bosnian Serb leader, yesterday gave an undertaking to the United Nations High Commissioner for Refugees that blocked relief convoys would be allowed to pass through Serb lines to besieged Moslem towns in eastern Bosnia.

The UN High Commissioner, Mrs Sadako Ogata, yesterday received an assurance to this effect from Mr Karadzic, whom she had telephoned from Geneva.

The Bosnian Serb leader, it was reported, was speaking in the presence of President Slobodan Milosevic of Serbia.

UNHCR spokeswoman Lyndall Sachs said that Mr Karadzic had also promised that aid workers would be allowed to enter the besieged town of Srebrenica and that the sick and wounded could be evacuated.

Combatants would also be allowed to leave, on condition that they surrendered their arms.

However, the UNHCR had earlier said that it would not allow any convoys to proceed to Srebrenica, after the Serbs had refused to allow them to have a military escort or radio communications.

According to UNHCR officials, some 60,000 people were cut off in Srebrenica, which UN relief convoys have failed to reach in 11 months of fighting and where dozens of people a day are dying of hunger, starvation, disease and war wounds.

In addition, thousands of refugees from neighbouring Moslem townships captured by Serb militias have swollen the population of Srebrenica and many are sleeping in the open air and suffering from exposure.

Mr Karadzic was due to fly to New York yesterday for peace talks with leaders of the other warring parties, under the chairmanship of Mr Cyrus Vance and Lord David Owen.

President Alija Izetbegovic of Bosnia, the Moslem leader, was also reported to have left for New York from Sarajevo to attend the peace negotiations.

Ms Sachs said that General Philippe Morillon, the UN military commander in Bosnia, who has set up temporary headquarters in Srebrenica in an attempt to make the Serbs let in aid, was due to have more talks later with Bosnian Serb army commanders.

France, which has expressed full support for General Morillon, said yesterday that getting international aid into Srebrenica was a test of Serb will to contribute to the peace process in Bosnia.

A French Foreign Ministry spokesman said that continued obstacles to the delivery of humanitarian aid to Srebrenica would be a serious blow to the UN Protection Force in the former Yugoslavia.

YU Yugoslavia, East Europe BA Bosnia-Hercegovina, East Europe P9721 International Affairs GOVT Government News P9721 The Financial Times London Page 3 429
Economists urge Emu fast track Publication 930317FT Processed by FT 930317 By DAVID BUCHAN PARIS

FOREIGN exchange markets need a fast-track move by Europe's strong currency countries towards closer monetary co-operation to convince them of the feasibility of economic and monetary union (Emu), a group of senior French economists said yesterday.

The group, assembled by the Commissariat du Plan, the French government think-tank, issued a report calling for 'an informal Emu among the hard-core countries' of the present European Monetary System.

This could start once the Maastricht treaty was ratified, and take the form of 'semi-institutional' agreements by the hard-core countries to stabilise their currency parities, the study said.

Mr Jean-Michel Charpin, senior economist at the BNP bank who presided over the group study, said last September's monetary crisis had sown serious doubts in the markets about Emu's feasibility. These doubts could only be removed by a new initiative, he said. Creating a network of specially close monetary co-operation between some EC states would not be contrary to the Maastricht treaty, and could be achieved within the framework of the European Monetary Institute to be set up under the treaty, the report claimed.

The report reflects similar sentiments inside the French presidency and in the opposition, which has pledged to give autonomous status to the Banque de France soon after its expected election victory this month. But, in contrast to the economists, most French politicians do not want to say anything in public which could jeopardise ratification of the Maastricht pact in Denmark and Britain.

QR European Economic Community (EC) P9611 Administration of General Economic Programs P6231 Security and Commodity Exchanges MKTS Market data P9611 P6231 The Financial Times London Page 3 281
Russia trying to isolate us, say Ukrainians Publication 930317FT Processed by FT 930317 By CHRYSTIA FREELAND KIEV

SENIOR Russian officials have cautioned east European countries not to form closer political and military ties with Ukraine, according to officials in Kiev and western diplomats.

A senior official in the Ukrainian foreign ministry warned that in the past few weeks conservatives had taken over Russian foreign policy making, and had now launched a campaign to bring Ukraine back under Russian hegemony.

The change in Russian attitudes towards Ukraine comes at a time when hardliners in Moscow have been winning political showdowns with President Boris Yeltsin, forcing him to take a less conciliatory line to neighbouring states than he might otherwise adopt.

This month, for example, Mr Yeltsin called on the United Nations to give Russia special authority to police disputes in the former Soviet Union, eliciting protests from independent-minded republics such as Ukraine and Moldova.

'Russia's attitude toward its neighbours can now be compared to Germany's in 1939,' the Ukrainian official said. 'This is a crucial moment when the west must realise that the consequences of a policy of appeasement are as dangerous as they were in 1939.'

Western diplomats in Ukraine say they are concerned about the new trend. One said Russian officials were warning east European countries 'not to bother building large embassies in Kiev because within 18 months they will be downgraded to consular sections.'

Mr Sergei Stankevich, a political adviser to Mr Yeltsin, recently warned Poland to limit growing political and military ties with Ukraine. Speaking in Warsaw last month, Mr Stankevich said Ukraine and Belarus fell within Russia's sphere of influence and Russia was opposed to the increasingly cosy relationship between Ukraine and Poland in foreign and military policy.

In the past three months four Polish ministers, including the prime minister and minister of defence, have visited Ukraine. A year ago Poland was the first country to recognise Ukraine and it has signed a number of military and political agreements with its neighbour.

Ties are also growing with Hungary, where Ukrainian president Leonid Kravchuk travelled this month.

RU Russia, East Europe UA Ukraine, East Europe P9721 International Affairs GOVT Government News P9721 The Financial Times London Page 2 370
Inflation at 4.7% in Spain Publication 930317FT Processed by FT 930317 By TOM BURNS MADRID

SPAIN'S year-on-year inflation rate has fallen to 4.7 per cent, its lowest level since June 1988, the consumer price index for January published yesterday showed, Tom Burns reports from Madrid. February figures, to be published next week, are expected to bring the 12-month inflation rate down to below 4.5 per cent.

The lower inflation has fuelled hopes of a cut in the official intervention rate early next week at the Bank of Spain's repurchase tender for its certificates of deposit.

ES Spain, EC P9611 Administration of General Economic Programs ECON Inflation P9611 The Financial Times London Page 2 112
Chemical accidents spark debate Publication 930317FT Processed by FT 930317 By ARIANE GENILLARD BONN

CONCERN about safety and environmental protection measures in the German chemical industry intensified yesterday as parliament announced an emergency debate on a series of accidents at plants operated by Hoechst.

At the same time, the federal Ministry of Environment ordered a government commission to investigate Monday's chemical explosion at a Hoechst plant near Frankfurt, which left one worker dead and another suffering from third-degree burns.

Mr Klaus Topfer, the environment minister, called for tougher application of the safety controls enforced by the state-run Technical Inspection Agency, TUV. He said: 'We have to bring in external expertise, for example by sending in the TUV to these plants to review safety precautions.'

The German Chemical Industry Association rejected stricter controls, saying that chemical enterprises were already making all necessary safety checks in their plants. 'I do not think that safety standards could be increased by external expertise,' Mr Wilfried Sahm, chairman of the association, said.

But the explosion, following a series of accidents at Hoechst plants, amounts to a severe public relations setback for the chemical industry, which came under attack both in the press and among politicians yesterday. Less than a month ago, an accident at Hoechst released 10 tonnes of chemicals into the sky over a Frankfurt suburb. Last Friday 100 litres of a potentially poisonous solution were discharged into the Rhine.

Mr Michael Muller, environment spokesman for the opposition Social Democrats, said yesterday that 11 accidents in the space of a few weeks must produce some response from legislators. 'Clearly, the current security measures are not adequate to reduce the potential danger of chemical production,' he said. 'It is a worrying sign that Hoechst cannot give precise information about the dangers from the emissions.'

The environmental group Greenpeace yesterday blockaded the main Hoechst plant near Frankfurt after the company refused to allow it to take samples of water and earth from the site.

Hoechst DE Germany, EC P28 Chemicals and Allied Products P9651 Regulation of Miscellaneous Commercial Sectors P2899 Chemical Preparations, NEC TECH Safety RES Facilities GOVT Government News P28 P9651 P2899 The Financial Times London Page 2 363
Spanish inflation falls to 4.7% Publication 930317FT Processed by FT 930317 By TOM BURNS MADRID

SPAIN'S year-on-year inflation rate has fallen to 4.7 per cent, its lowest level since June 1988, the consumer price index for January published yesterday showed.

The January statistics, which were held over for a month while the index's weighting was overhauled, showed a CPI rise of just 0.9 per cent. Figures for February, which will be published next week, are expected to bring the 12-month inflation rate down to below 4.5 per cent.

Domestic inflation began to peak in the third quarter of last year: Spain's GDP registered a negative growth over the last three months of 1992, - 0.2 per cent, and the CPI ended last year with a rise of 5.4 per cent that was marginally down on the December 1991 figure. The markets had expected the recession to be reflected by a fast fall in the inflation rate at the start of this year.

Underlying inflation, which does not include the more volatile prices of non-processed foods and energy, fell by slightly less than the headline rate, to come down from 6.9 per cent at the end of December to 6.5 per cent in January.

The lower inflation rate, which is a direct result of the slump in domestic demand, has fuelled hopes for a cut in the official intervention rate early next week at the Bank of Spain's routine repurchase tender for its certificates of deposit. Such expectations will be all the higher should the Bundesbank ease interest rates tomorrow.

ES Spain, EC P9611 Administration of General Economic Programs ECON Inflation P9611 The Financial Times London Page 2 276
Escudo knocked by conflicting signals: A crisis of confidence after Portuguese central bank deputy chief's resignation Publication 930317FT Processed by FT 930317 By PETER WISE

PORTUGAL'S financial markets, disoriented by contradictory signals from the government and the central bank, lapsed yesterday into a crisis of confidence after the resignation last Thursday of the bank's deputy governor in an apparent policy rift with the government.

The Bank of Portugal said it had again had to intervene to defend the escudo from speculation as the currency opened at a low Es93 to the D-mark. Heavy central bank buying through the day drove it back up to Es92.63, dealers said. Immediately after the resignation of Mr Antonio Borges the escudo fell to a record low of Es94.

The crisis stems from government ambiguity about whether it intends to maintain a policy of a strong escudo and high interest rates or it is preparing to relax exchange-rate and monetary policy to foster faster growth.

'The government has left the market perplexed about whether its is preparing an about-turn in economic policy or it plans to maintain its tough stance,' said Mr Jose Tavares Moreira, a former governor of the Bank of Portugal.

The crisis seems almost unreal. Until now, the centre-right Social Democratic government and the central bank have worked closely together in pursuing a strong escudo and tight monetary policy as the key weapons against Portuguese inflation, which fell from 11.4 per cent in 1991 to 8.9 per cent in 1992.

But not everybody is celebrating. Expensive money and high export prices caused by the strength of the escudo are taking a heavy toll in agriculture and traditional industries such as textiles, garments and footwear. Protests from industry are constant and farmers have tipped wine and potatoes they are unable to market on the steps of government offices.

'These are difficulties of the transition of the Portuguese economy that were foreseeable as soon as we joined the EC in 1986,' says Mr Miguel Namorado Rosa, chief economist with Banco Comercial Portugues. Mr Borges at the central bank had also often warned of the casualties that Portugal would face when it came to transferring resources from non-competitive to competitive sectors. He was respected for his firm line and professional competence and appeared to have full government backing.

But doubts were raised about the government's commitment to the fight against inflation in a speech last Thursday by Mr Jorge Braga de Macedo, finance minister. He called the central bank to task for not listening to the needs of the real economy and for not lowering interest rates faster.

The immediate result was Mr Borges's resignation and deep concern in the financial markets. Was the government now going for growth at the expense of inflation? Mr Anibal Cavaco Silva, the prime minister, had just fueled market suspicions by announcing an Es270bn (Pounds 1.22bn) housing programme to wipe out shanty towns and slum dwellings that would boost the construction industry. He admitted the programme would worsen the budget deficit.

But the Bank of Portugal already enjoys considerable independence and it seems clear that Mr Borges was expected to ignore the finance minister's remarks. There are important local elections in Portugal in December and the minister may, analysts believe, simply have been trying to make the right noises.

The government, though, is in a bind of its own making. With the elections in view, it cannot openly reverse its calls for lower interest rates but it badly needs to repair the damage it has done to the escudo.

'The finance minister's speech was for consumption by worried industrialists, farmers and commercial companies,' says Mr Namorado Rosa. 'The aim is to give the impression that the government wants to be more flexible but in reality nothing is going to change.'

Supporting this view is the fact that Mr Miguel Beleza, governor of the Bank of Portugal, has stayed at his post. The central bank has even edged up its intervention rates slightly.

PT Portugal, EC P9311 Finance, Taxation, and Monetary Policy P6011 Federal Reserve Banks P6231 Security and Commodity Exchanges PEOP Personnel News GOVT Government News P9311 P6011 P6231 The Financial Times London Page 2 695
Union threatens German steel strike Publication 930317FT Processed by FT 930317 By JUDY DEMPSEY BERLIN

THE German steel employers association meets tomorrow to decide its next step after the breakdown of arbitration talks with IG Metall, the country's giant engineering union, over a wage settlement for the east German steel industry.

The fifth round of talks unexpectedly broke down in Berlin after IG Metall rejected a 9 per cent pay offer by the employers association. IG Metall said yesterday it would continue to insist on a 20 per cent increase, agreed under a programme of equalising pay between western and eastern German workers by April 1994.

The union said it expected the employers to follow Gesamtmetall, the metal and electrical employers association, in revoking the March 1991 contract when it meets tomorrow. The union said if that happened it would respond with warning strikes, followed by a ballot on a full strike if IG Metall's 20,000 members in east Germany did not receive the 20 per cent pay rise on April 1.

Rank-and-file support for such action is uncertain. Since Gesamtmetall revoked earlier this month the contract guaranteeing east German metal and electrical workers a 26 per cent wage increase, several factory managers in the region have started negotiating separate pay deals with the unions.

A foreign manager of a company which has invested heavily in eastern Germany, said yesterday he was prepared to offer a 15 per cent increase. 'This is realistic in view of the fact that our productivity is 65 per cent of west German levels,' he said.

IG Metall yesterday shrugged off moves towards separate wage agreements, saying that warning strikes would reveal whether its members were prepared to continue to pay west German prices while earning east German wages.

DE Germany, EC P8631 Labor Organizations P3312 Blast Furnaces and Steel Mills PEOP Labour P8631 P3312 The Financial Times London Page 2 315
MEPs seek cut in emissions Publication 930317FT Processed by FT 930317 By DAVID GARDNER BRUSSELS

THE Socialist group in the European Parliament called yesterday for a 20 per cent cut in EC carbon dioxide emissions by the year 2005 - a much steeper reduction than the target the Community is already struggling to meet.

The ambitious target is part of a list of 55 environmental measures the Socialists are advancing as a programme the EC should now take up with the same vigour the Community demonstrated in creating the single European market, which came into force this year.

The EC is committed to stabilising CO emissions at 1990 levels by 2000, although Germany and Denmark have set themselves the 20 per cent cuts the Socialists are calling for by 2005, and Belgium and the Netherlands are aiming at 5 per cent cuts by 2000.

The 199 Socialists MEPs are the largest bloc in the European Parliament, and one of their number, Mr Ken Collins, Labour Euro-MP for Strathclyde East in Britain, chairs its environment committee, which has had significant influence in shaping EC 'green' standards.

The committee is one of the most heavily-lobbied bodies in the EC, especially by industry.

The programme calls for early agreement on the controversial energy tax proposed by the European Commission to cut CO emissions and combat global warming, and mandatory energy efficiency standards on a wide range of appliances such as boilers, washing machines and cars.

It would also introduce a general duty for manufacturers to take back and recycle 'end-of-life' products, move towards a comprehensive system of environmental liability, and strictly enforce environmental impact assessment on construction projects and all EC-funded programmes, in and outside Europe.

EC environmental impact assessment rules have been an area of consistent friction between Brussels and all member states, particularly the UK, although the Commission has been backing away from legal action for fear of further upset in the tortuous ratification of the Maastricht treaty.

Under Maastricht, the European Parliament will get 'co-decision,' or a legislative voice equal to the Council of Ministers of the 12 in setting framework programmes for the environment. But it will still be consulted only on measures with fiscal, land use, water resources or choice of energy resources implications. Under EC rules only the commission can propose such changes.

Mr Collins, presenting the 55-point programme in Paris yesterday, said: 'It is now eight years since the White Paper on the completion of the internal market, and the project is all but complete. We must now plan for the next decade and the big idea must be the environment.'

QR European Economic Community (EC) P9511 Air, Water, and Solid Waste Management RES Pollution GOVT Government News P9511 The Financial Times London Page 2 458
Bundesbank cautious over rates: Solidarity pact welcome but not reason enough for cut, says Issing Publication 930317FT Processed by FT 930317 By CHRISTOPHER PARKES FRANKFURT

LAST weekend's solidarity agreement between the German government and opposition was a positive development, but not a reason in itself for easing interest rates, Mr Otmar Issing, a member of the Bundesbank's directorate said yesterday.

Monetary developments remained the main basis for such decisions, he told a conference in Wolfsburg. But Mr Issing welcomed the pact because it spelt an end to political uncertainty.

The central bank council would carefully examine its implications for public sector debt and taxation levels at its meeting tomorrow. 'We have to analyse what the result means in concrete terms for the economy,' he told reporters.

While the weekend package has been widely welcomed for its political implications, analysts suggest that it will lead to increased government deficits in the near-term, and point out that the direct and indirect tax increases run counter to the Bundesbank's declared preference for spending cuts rather than higher taxation.

Mr Issing's caution was in distinct contrast to an upbeat claim from Mr Theo Waigel, finance minister, that circumstances for further interest rate cuts had been improved.

Now that money supply was on course, conditions were more favourable, he said.

Mr Waigel added, however, that he did not want to predict if, when and to what extent rates would fall, because he did not want to speculate.

Many analysts say a cut of at least 0.25 per cent in the 8 per cent discount and 9 per cent Lombard rates is likely tomorrow, although they agree that last weekend's political developments will have at best a neutral impact on the bank council's thinking.

According to Mr Issing, monetary policy was not part of the solidarity pact, nor was it a slave to other political circumstances.

He was not sure if February's money supply figures would be available for tomorrow's meeting of the bank's central council, but inflation was still too high, he noted.

However, growth in the M3 measure of money supply is widely believed to be shrinking under the pressure of recession. Inflation, 4.2 per cent at the last reckoning, is tending to fall. While wholesale prices rose 0.2 per cent between January and February, they were still 1.8 per cent lower than a year earlier, the federal statistics office reported yesterday.

In January, M3 contracted at an annualised rate of 2.4 per cent, revised from a preliminary 2.3 per cent, in contrast to the bank's target range of 4.5 per cent to 6.5 per cent annual growth. Preliminary figures are usually available around the 20th of each month.

Meanwhile, the Bundesbank held to the lower rates at which it supplies wholesale funds to the money market with the announcement of a fixed rate tender for securities repurchase funds at 8.25 per cent.

Despite apparent tightness in the market - call money rates rose towards 8.75 per cent yesterday after 8.40-8.45 per cent on Monday - the central bank said it believed that there was enough liquidity in the markets.

Mr Johann Gaddum, a directorate member, said that the fresh 'repo' allocation was expected to ease some of the 'unjustified' concern in the markets.

The bank surprised markets earlier this month when it lowered the repo rate by almost a quarter of a point to 8.25 per cent. This was seen at the time as a signal that the discount and Lombard rates were likely to be cut at this week's meeting.

DE Germany, EC P9311 Finance, Taxation, and Monetary Policy P6011 Federal Reserve Banks CMMT Comment & Analysis GOVT Government News ECON National income P9311 P6011 The Financial Times London Page 2 618
Regions weigh up Moscow power struggle Publication 930317FT Processed by FT 930317 By LEYLA BOULTON MOSCOW

FROM Sakhalin Island near Japan to Murmansk near Norway, Russia's regions are weighing up the consequences of the political crisis in Moscow with less trepidation than President Boris Yeltsin.

As Mr Sergei Shakhrai, Mr Yeltsin's chief legal adviser, met the heads of local emergency committees, local officials interviewed in a straw poll yesterday were sceptical about the need or likelihood of extraordinary measures.

While the legislative and executive branches battle it out in Moscow, Russia's 89 constituent republics and regions are demanding more freedom to run their affairs as promised in a federation treaty signed by all parties last year.

Under threat from a Congress of People's Deputies, Mr Yeltsin has argued that only a strong presidency can push through radical economic reforms and keep together a country spanning 14 time zones.

But Ms Zoya Kornilova, both a deputy and the official representative in Moscow of Sakha, the autonomous republic which produces most of Russia's diamonds, said the Congress had spared President Yeltsin a humiliating defeat by banning the referendum he wants. 'He has enough powers. He just has not used them effectively,' she said, adding that Sakha, better known as Yakutia, could not guarantee that a referendum would obtain a quorum.

Mr Ivan Shabunin, head of the regional administration of Volgograd in southern Russia which has forged ahead with economic reforms, dismissed a statement by President Yeltsin's spokesman that the Congress was trying to restore communism.

'We just need to work,' he said, supporting a statement by regional chiefs calling for a moratorium on all elections and referendums this year and next. 'Let those who started reforms carry them through and take responsibility for them.'

Dr Vyacheslav Silin, deputy chief of the Murmansk regional administration, was alone among those surveyed in sharing the president's fears: he pointed out that if radical reforms were not allowed to succeed, regions would try to fend for themselves and accelerate a break-up of Russia.

But he said he doubted Mr Yeltsin could count on sufficient support from structures like the army to introduce presidential rule. With most Russians disillusioned with politics, many regional chiefs feared that a referendum turnout would be low.

Many are looking for change from the government of Mr Viktor Chernomyrdin, who has pledged tough financial policies combined with the removal of special tax privileges for individual regions and enterprises.

Mr Grigory Shamin, head of the regional council of Tomsk in Siberia, complained that last year the federal government had allowed regions only 19 per cent of revenues, but that individual regions, including Tomsk, had been able to keep 50 per cent after lobbying Moscow.

'Why don't they just give us all 40 per cent?' he asked.

Mr Viktor Sirenko, deputy governor of Sakhalin Island, said Moscow had to stop treating the regions 'like slaves'.

RU Russia, East Europe P9111 Executive Offices P9121 Legislative Bodies GOVT Government News P9111 P9121 The Financial Times London Page 2 501
EC-Norway talks soon Publication 930317FT Processed by FT 930317 By REUTER BRUSSELS

THE European Commission is expected next week to clear the way for talks on Norway's application to join the European Community, Commission officials said yesterday, Reuters reports from Brussels.

Adoption of an EC report at the Commission's weekly meeting next Wednesday will mean talks can open with Oslo during a formal ceremony at the April 5 meeting of EC foreign ministers in Luxembourg.

The ceremony will be televised just as were the opening of talks with Austria, Finland and Sweden on February 1.

Once talks are launched they should be brought quickly up to speed so they can proceed in parallel with the other three applicants, which have already held two rounds of talks.

NO Norway, West Europe QR European Economic Community (EC) P9721 International Affairs GOVT Government News P9721 The Financial Times London Page 2 147
Budget Highlights Publication 930317FT Processed by FT 930317

Income tax: Basic and higher rates unchanged. Freeze on allowances. Width of 20p band to increase by Pounds 500 to Pounds 2,500 on April 1 and further Pounds 500 next year. Self-assessment offered to 8m taxpayers from 1996-97. Self-employed to pay tax on current year profits.

VAT: No extension of VAT base beyond domestic fuel and power which will be rated at 8% from April 1994 and 17.5% from 1995. Small business threshold raised to Pounds 37,600.

National insurance: No change this year.

Company cars: Scale charges up 8%, fuel scale charges up 20%. High business miles discount abolished.

Fuel: Duties up 10% - 12p a gallon on unleaded petrol and diesel and 15p on leaded. Road tax rises Pounds 15 to Pounds 125.

Petroleum revenue: Tax rate on existing fields cut from 75% to 50% from July 1. PRT abolished for new fields.

Drinks: Most duties rise 5%. Beer up 1.5p a pint, wine 5.5p a bottle. Spirits unchanged. Overall tobacco duty up 6.5% - 10p on 20 cigarettes.

Corporation tax: Advance tax down from 25% to 22.5% this year and 20% in 1994-95. Tax credit for shareholders receiving dividend to be cut from 25% to 20% in 1993-94.

Mortgage relief: Rate restricted to 20% from April 1994.

Stamp duty: Threshold doubled to Pounds 60,000.

National Lottery: Tickets taxed at 12% for first year: winnings untaxed.

Gaming machines: Duty rises 20%.

Employment: Community action programme for 60,000 long-term unemployed to work part time. Full-time vocational courses for 30,000. Business start-up scheme expanded.

Transport: Heathrow-Paddington and Channel Tunnel-St Pancras rail links agreed.

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy GOVT Government News P9311 The Financial Times London Page 1 289
Stock & Currency Markets Publication 930317FT Processed by FT 930317

------------------------------------------------------- STOCK MARKET INDICES ------------------------------------------------------- FT-SE 100: 2919.3 (-3.1) Yield 4.14 FT-SE Eurotrack 100 1151.53 (-2.09) FT-A All-Share 1424.79 (-0.0%) FT-A World Index 146.64 (+0.2%) Nikkei 17,968.30(-117.88) New York: Dow Jones Ind Ave 3442.95 (+0.54) S&P Composite 451.37 (-0.06) ------------------------------------------------------- US CLOSING RATES ------------------------------------------------------- Federal Funds: 2% (3 1/8%) 3-mo Treas Bills: Yld 3.024% (3.033%) Long Bond 103 5/32 (102 7/8) Yield 6.872% (6.894%) ------------------------------------------------------- LONDON MONEY ------------------------------------------------------- 3-mo Interbank 6% (Same) Liffe long gilt future: Jun 105 15/32 (Jun 106 7/8) ------------------------------------------------------- NORTH SEA OIL (Argus) ------------------------------------------------------- Brent 15-day (May) Dollars 18.68 (18.75) ------------------------------------------------------- Gold ------------------------------------------------------- New York Comex (April) Dollars 329.8 (same) London Dollars 328.75 (328.65) ------------------------------------------------------- STERLING -------------------------------------------------------

New York: Dollars 1.4485 (1.43475) London: Dollars 1.445 (1.4345) DM 2.4025 (2.3825) FFr 8.1675 (8.1025) SFr 2.2 (2.1825) Y 168.75 (170.0) Pounds Index 77.7 (77.2) ------------------------------------------------------- DOLLAR ------------------------------------------------------- New York: DM 1.6646 (1.6623) FFr 5.6555 (5.6335) SFr 1.5255 (1.52285) Y 117.05 (118.605) London: DM 1.663 (1.6615) FFr 5.6525 (5.6475) SFr 1.522 (Same) Y 116.8 (118.5) Dollars Index 66.5 (66.8) Tokyo opens Y 116.9 -------------------------------------------------------

US United States of America GB United Kingdom, EC DE Germany, EC FR France, EC CH Switzerland, West Europe JP Japan, Asia P6231 Security and Commodity Exchanges P1311 Crude Petroleum and Natural Gas P3339 Primary Nonferrous Metals, NEC COSTS Commodity prices COSTS Equity prices P6231 P1311 P3339 The Financial Times London Page 1 237
Forecast of Pounds 50bn PSBR alarms City Publication 930317FT Processed by FT 930317 By ROBERT PESTON and ROLAND RUDD

THE CITY gave a lukewarm reaction to the Budget, with some fund managers and brokers predicting that share prices would open sharply lower this morning.

The chancellor's forecast that the public sector borrowing requirement will be Pounds 50bn next year caused concern. Mr Graeme Knox, managing director of Scottish Amicable's investment managers, said: 'Mr Lamont's Pounds 50bn PSBR forecast is horrific.'

Mr Keith Percy, head of fund management at Morgan Grenfell, the merchant bank, said: 'The stock market will go down tomorrow. It is likely to be 50 points lower by 10am.'

The forecast budget deficit prompted a fall yesterday of 1 1/4 points in the price of long-dated gilt-edged stock. However, sterling rose against the D-Mark, as currency dealers interpreted the chancellor's remarks as signalling there would not be interest rate cuts in the short term.

Banks said they had no plans to increase their purchases of gilts in spite of the chancellor's decision to allow bank and building society purchases of gilt-edged stock to count towards the funding of the public sector deficit.

Both Barclays and NatWest said that they had no plans to increase their purchases of gilts.

Forecasts that share prices would fall today were prompted by the chancellor's decision to cut the tax levied on dividends, called advance corporation tax, from 25 per cent to 20 per cent.

Because pension funds can reclaim this tax from the government, the effect on them of the tax cut is to reduce their income from holding shares, so some said that they might switch into gilts.

On the basis of the new tax rate, the stock market's average gross dividend yield would have been 3.88 per cent last night, compared with the actual rate of 4.14 per cent.

Analysts said that the stock market might also be depressed by the separate Budget proposal to classify dividends paid out of UK companies' overseas profits as 'foreign income dividends'.

No tax credits would be available on these dividends, causing a further reduction in pension funds' income.

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy P6231 Security and Commodity Exchanges GOVT Government News P9311 P6231 The Financial Times London Page 1 380
Growth now but pain later: Lamont delays big tax increases until next year Publication 930317FT Processed by FT 930317 By PETER NORMAN, Economics Editor

MR NORMAN LAMONT took a calculated gamble with Britain's finances yesterday by leaving the economy to grow out of recession in 1993-94, postponing the pain of big tax increases until April 1994 and beyond.

But the chancellor unnerved the City by forecasting a Pounds 50.1bn public sector borrowing requirement for 1993-94, some Pounds 5bn higher than expectations. This led to a sharp 1 point fall in prices for government gilt-edged securities.

Presenting his third Budget, and the last of the traditional spring revenue-raising Budgets, the chancellor announced:

A series of measures to help industry and small businesses.

A Pounds 230m package to provide opportunities for the long-term unemployed.

A modest extension in the range of value added tax to domestic fuel and power, to take effect from April 1994.

Moves to increase the importance of the 20 per cent income tax band introduced last year.

A boost to the housing market by cutting stamp duty.

A relaxation of the 'full funding' rule so that bank and building society purchases of gilts will count towards financing the PSBR.

Increased National Insurance contributions from 1994-95.

The Budget envisages a net increase in taxation of only Pounds 490m in the coming financial year - well below the Pounds 2.25bn tax rise expected in financial markets.

Although his long and complex speech failed to excite Tory backbenchers seeking a revival in the government's battered fortunes and drew withering scorn from the opposition, the chancellor spoke as a man who intended to stay in his job for some years to come.

Following the recent example of US president Bill Clinton, Mr Lamont announced substantial tax rises for later years. He declared his intention to enact as many as possible into law by August when discussion of the finance bill must be completed. The measures announced yesterday will raise Pounds 6.73bn in extra taxes in 1994-95 and Pounds 10.3bn in 1995-96.

Mr Lamont said that Britain would grow faster than its European Community partners this year. He forecast that the economy would expand by 1.25 per cent in 1993 and at an annual rate of 3 per cent in the first half of 1994. He made clear that the government believes bank base rates, at 6 per cent, are appropriate to current economic conditions.

Although Mr Lamont did not mention it, yesterday's Budget marked a significant dilution of the government's earlier policy of balancing the Budget over the economic cycle.

The Treasury 'Red Book', issued after the chancellor sat down, showed that it was the government's objective to reduce the PSBR to Pounds 39bn by 1995-96 and Pounds 30bn by 1997-98. In five years, Britain will have a deficit of 3 3/4 per cent of gross domestic product - more than the level specified as appropriate in the Maastricht treaty - compared with 8 per cent in the coming financial year.

Mr Lamont said his Budget was one for 'sustained recovery' and for jobs 'not just for this year and for next year, but right through the decade'.

The Budget bore the hallmarks of having paid close attention to the pleas of big industry and small businesses alike, by announcing a two-stage reduction in advance corporation tax rates and more flexibility in the handling of penalties for late value added tax returns and misdeclarations.

Many of the tax increases announced yesterday were designed with more than one objective in mind. They also sought to interfere as little as possible with the supply side of the economy.

Where he 'gave away' taxes in the coming financial year, the chancellor made sure that there would be even bigger income flows for the government in future years.

The chancellor, for example, used environmental arguments to justify higher taxes on domestic fuel and petrol. He announced plans to levy VAT on domestic fuel and power from April 1994 - initially at 8 per cent and after a year at the full standard rate of 17.5 per cent - and to raise duties on petrol and other road fuels by at least 3 per cent in real terms in future budgets after a rise of 10 per cent in 1993-94.

These measures would help the UK to meet two-thirds of its target for reducing carbon dioxide emissions under the United Nations Convention on Climatic Change, he said. As expected, Mr Lamont froze income tax allowances and thresholds for 1993-94, raising some Pounds 660m in the process, and left income tax rates unchanged at 20 per cent, 25 per cent and 40 per cent. He took modest steps to strengthen the role of the 20 per cent tax rate in the income tax system.

The 20 per cent band will be extended by more than indexation to Pounds 2,500 in 1993-94 and by a further Pounds 500 in 1994-95 as a step towards turning it into the basic rate of income tax.

The chancellor also reduced the tax credit on dividends from 25 per cent to 20 per cent in 1993-94 and plans to restrict the tax relief on married couples to 20 per cent from April next year.

In moves designed to give a short-term boost to the housing market, he doubled the stamp duty threshold for transactions on houses, land and property to Pounds 60,000 immediately - at a cost of Pounds 220m in 1993-94 and Pounds 270m the following year.

But from April 1994, tax relief on mortgage interest payments will be restricted to 20 per cent of the Pounds 30,000 limit compared with 25 per cent at present. This will yield an estimated Pounds 820m in 1994-95, rising to Pounds 870m the following financial year and cost households Pounds 10 a month.

Smokers, drinkers and car drivers will feel the impact of the Budget immediately. Alcohol duties, other than spirits, rose by 5 per cent last night, putting 1 1/2 pence on a pint of beer and 5 1/2 pence on a bottle of wine.

Tobacco duties increased by 6.5 per cent, adding 10 pence to the price of a packet of cigarettes.

National Insurance contributions for employees and the self-employed will rise from 1994-95 onwards, increasing government income in that year by Pounds 1.79bn and by Pounds 2.22bn in 1995-96.

Among measures to deal with some of Britain's 3m jobless, Mr Lamont announced plans for four pilot schemes that would subsidise employers to create jobs for the long-term unemployed.

He also announced a number of projects to boost investment in infrastructure with private finance. These include the Heathrow Express rail link to Paddington Station, which will go ahead as a joint venture between British Rail and BAA, and the Channel tunnel rail link, which is to proceed as a joint venture between the public and private sectors by the end of the decade.

The Budget set aside more funds to help exporters to fast-growing markets. The need for such a measure was emphasised by the Treasury forecast that the current account balance of payments deficit would rise this year to Pounds 17.5bn from Pounds 12bn in 1992.

Lex, Page 18

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy GOVT Government News P9311 The Financial Times London Page 1 1216
Widespread anger as VAT is levied on home fuel bills Publication 930317FT Processed by FT 930317 By MICHAEL SMITH, DEBORAH HARGREAVES and BRONWEN MADDOX

THE much-feared increase in value added tax on Britain's wide range of zero-rated items was limited to a delayed increase in household power bills.

VAT will be introduced on domestic fuel and power at an 8 per cent rate from April 1994 and at the full 17.5 per cent from April 1995.

Mr Norman Lamont used environmental arguments to justify the new levy but was bitterly attacked for doing so by the opposition, consumer and poverty action groups.

The change takes the UK into line with other European countries, all of which, except Ireland, levy VAT on fuel bills.

Mr David Blunkett, shadow health secretary, accused Mr Lamont of 'endangering the lives of many elderly people'.

British Gas, which has cut domestic gas prices by 20 per cent since it was privatised in 1986, said its customers would be 'disappointed' at the VAT burden. But it had schemes which could help people with difficulty paying their bills, it said.

Mr Lamont said levying VAT on domestic fuel bills would encourage greater energy efficiency in every household, helping the UK to achieve targets set in the world environmental conference in Rio de Janeiro last year.

Electricity and gas industry analysts, however, said that the changes would have only a limited impact on company profits because demand for household fuel and power, seen as a basic necessity, is relatively inelastic. Energy shares might fall, nevertheless, on sentiment, they said.

The measure would raise Pounds 950m in 1994-95, Pounds 2.3bn in 1995-96 and Pounds 3bn a year thereafter. Social security benefits would rise automatically to reflect the price effect of this change, the chancellor said. The government recognised that the change would cause difficulties for those on low incomes and would take this into account when income-related benefits rose next year.

The average household spends about Pounds 300 on electricity and Pounds 300 on gas. Help the Aged said the average single-household elderly person spent Pounds 8.50 a week on fuel and this would rise by Pounds 1.50. State pension and income support should rise in line, it said.

The Gas Consumers' Council said the imposition of VAT on fuel bills was a 'punitive tax'. It said it wanted the government to make grants available for energy efficiency improvements to help offset the burden of higher fuel costs.

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy GOVT Taxes P9311 The Financial Times London Page 1 427
Tory acclaim tempered by worries over deficit Publication 930317FT Processed by FT 930317 By PHILIP STEPHENS, Political Editor

THE TOUGHEST budget for more than a decade was last night greeted by the government's supporters at Westminster with a mixture of weary resignation and dutiful applause.

Backing among Conservative MPs for Mr Norman Lamont's decision to tackle the soaring budget deficit was matched by deep concern over the scale of the task facing the government in restoring its battered political authority.

Cabinet colleagues said the chancellor's tough package - albeit with most of the pain deferred until next year - was designed to demonstrate that the Treasury had restored a grip on economic policy after last year's sterling debacle.

But a scathing Commons attack by Mr John Smith, the Labour leader, dispelled any illusions that it would bring short-term popularity. Mr Smith's comment that it was a 'shameful budget from a cynical party' was followed by the private admission of one minister that Mr Lamont had offered no more or less than an 'acknowledgement of the depressing reality'.

As Conservative MPs digested the implications of a Pounds 1bn-a-week budget deficit and the blatant reversal of their election tax pledges, one instant judgment was that Mr Lamont had strengthened his hold on the chancellorship.

With much of the content of the second budget in November pre-empted by yesterday's package, the consensus was that the pressure on the prime minister to reshuffle his cabinet in July had diminished.

Mr Lamont chose also to underline his support among his party's Euro-sceptics with two deliberate references in his speech to his determination to keep Britain's social and tax policies out of the hands of Brussels.

But Mr John Major's associates insisted that no decisions had been taken on the prospect or otherwise of cabinet changes, leaving the chancellor's fate dependent on the pace of economic recovery.

Strong support for the measures in the Budget to help industry and the unemployed was coupled with relief on the Tory

backbenches at the decision not to risk the fragile economic recovery by deferring tax increases until next year.

Most thought the chancellor has struck the right balance between promoting economic growth now and persuading the financial markets that the government has a credible medium term programme to reduce the budget deficit.

But enthusiasm for the decision to defer the extension of valued added tax, the increase in National Insurance contributions and the reduction in mortgage interest relief was tempered by concern over the medium term outlook. As ministers and Tory MPs studied the fine print they were hit by the realisation that two years of substantial tax increases will still leave a budget deficit of Pounds 30bn by the time of the next general election in 1997.

Senior Whitehall officials sought to counter that by stressing that by putting large tax increases in place now the chancellor had left open the possibility of modest cuts in income tax in the approach to the election.

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy GOVT Government News P9311 The Financial Times London Page 1 515
The Budget (Analysis): Three ways to stop tax savings - Avoidance Rules Publication 930317FT Processed by FT 930317 By TONY ALLEN

THE CHANCELLOR announ-ced three measures yesterday to counteract tax saving by UK companies. All three measures will have immediate effect.

The first is to bring within the UK tax net more overseas subsidiaries situated in low tax countries, the so-called controlled foreign companies.

Under present arrangements, overseas companies will become subject to UK corporation tax if they pay local tax at less than half the UK rate. The chancellor proposes that this limit should be raised to three-quarters.

As a result, many UK subsidiaries operating in such places as Hong Kong will now become subject to UK tax. The tax burden of the UK holding company will therefore rise.

Measures are also proposed to tax interest received by UK companies from their overseas associated companies on an accounts basis.

Previously the interest may have been taxed when it was received, and provided an opportunity for a group to benefit from a tax deferral on the interest received in the UK. At the same time, the paying company was receiving overseas tax relief when the interest was charged to its own accounts. The proposals will reduce the attractiveness of such arrangements.

Finally, the chancellor has moved to prevent groups of companies from benefiting from the use of capital losses in companies they have purchased from outside the group. The Inland Revenue had previously announced that it would not object to the purchase and use of these capital loss companies, but the loss of tax revenue to the exchequer from the use of such companies to reduce groups' tax liabilities has clearly caused a rethink.

The author is a partner at Coopers & Lybrand

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy CMMT Comment & Analysis GOVT Taxes GOVT Draft regulations P9311 The Financial Times London Page 26 318
The Budget (Analysis): Scale charges framework is scrapped - Company Cars Publication 930317FT Processed by FT 930317 By JOHN GRIFFITHS

SOME 700,000 drivers face increases in their company car tax benefit bills, in a few cases of about a half, compared with currently when the new business car taxation structure takes effect from April 6 1994.

However, the remainder of the UK's 2m company car driver population can expect to see their bills fall by up to a third compared with the current tax year.

The new structure, which disregards some of the key elements in outline proposals for reform put out by the Inland Revenue last year, will give fresh incentive to companies to examine cash alternatives to the company car - at least for some categories of user.

Hardest hit will be senior executives with cars currently costing about Pounds 19,000 and covering fewer than 2,500 business miles annually. Typical beneficiaries will be junior executives, driving cheaper cars for more than 2,500 business miles.

This outcome is the result of a revised taxation structure under which, to the relief of accountants, fleet managers and most car makers, the current awkward system of scale charges - arrived at through engine capacity and price banding - is scrapped.

In its place will come one based on a simple 35 per cent of all cars' list prices. This level was marginally higher than proposed by the Revenue. Drivers covering 2,500-18,000 business miles will have a discount of a third on their assessment; drivers covering more than 18,000 a discount of two-thirds.

This of itself might not please individual taxpayers.

But in also rejecting the Revenue's proposal to retain banding, albeit based only on price and with a dozen bands, Mr Lamont has certainly pleased much of the motor industry.

It should end 'tax break specials' and other market-distorting factors which have been criticised by, among others, the Monopolies and Mergers Commission and which have arisen from price 'breakpoints', at Pounds 19,250 and Pounds 29,000, above which the assessed tax benefit rises sharply.

It is also self-adjusting, ending much of the sales-depressing market uncertainty that in the past has always surrounded Budget time, as company car makers, dealers and buyers have waited to see what the latest scale charge increases would be.

Under the new system, the increase in taxation will automatically be determined by inflation - as new car prices rise, the assessed tax benefit will rise in proportion. In terms of the new system's long-term effects, one important 'unknown' for the vehicle industry will not be clarified until it has been operative for some time. Will it lead to a general company car 'downsizing' as a result of company car drivers having more flexibility in choosing the size of their tax bill?

Should it do so on any significant scale, vehicle makers may yet come to regret their current support for the changes. Makers of luxury cars such as Rolls-Royce will be hurt by the lack of a 'cap' on the list price formula. Currently, the tax charge on a Pounds 100,000 Rolls-Royce is the same as on a Pounds 35,000 Jaguar.

When the scheme arrives, increases for company car drivers will be less draconian than they might appear, because of the 8 per cent increase in the scale charges under the current system announced for the 1993-94 tax year.

But Mr Lamont is stepping firmly on the least defensible company car 'perk' - free fuel for private motoring. The scale charge for that shoots up by 20 per cent, and out goes the 50 per cent reduction in the scale charge for high business mileage users. Both are well above inflation, and their introduction will mean the government then will regard company car users as fairly taxed relative to private motorists.

This is well above current inflation, and when it comes in next month will mean the Government then regarding company car users as fairly taxed relative to private motorists.

Despite the uneven impact of the new regime in 1994, it is not intended to tighten the screw of company car taxation, in real terms, any further.

There will, however, be some disappointment that the business mileage bands were not adjusted.

Under next year's scheme, clear 'perk' car users, those covering fewer than 2,500 business miles a year, will pay tax at their marginal rate on the full 35 per cent of a car's list price. The main problem comes with the middle band, representing around 1.35m of the total, covering 2,500-18,000 business miles a year.

What then becomes self-defeating in terms of business costs and efficiency, and even for the environment, is that there is then a strong temptation for such employees to invent unnecessary business trips solely to reach the 18,000 mile threshold.

----------------------------------------------------------------------- Company car taxation changes ----------------------------------------------------------------------- Car Jaguar XJ12 Cylinder capacity 6,000cc Typical driver Company chairman Marginal rate of tax paid 40% Annual buiness mileage Less than 2,500 List price pounds 46,000 Scale charge Actual tax paid Current pounds 13,950 pounds 5,580 New (1993/4) pounds 15,066 pounds 6,026 New (1994/5) pounds 16,100 pounds 6,440 ----------------------------------------------------------------------- Car Mercedes 280E Cylinder capacity 2,800cc Typical driver Managing director Marginal rate of tax paid 40% Annual buiness mileage 2,500-18,000 List price pounds 28,600 Scale charge Actual tax paid Current pounds 5,750 pounds 2,300 New (1993/4) pounds 6,210 pounds 2,484 New (1994/5) pounds 6,673 pounds 2,670 ----------------------------------------------------------------------- Car Rover 820 Vitesse Cylinder capacity 2,000cc Typical driver Manager Marginal rate of tax paid 25% Annual buiness mileage 2,500-18,000 List price pounds 19,695 Scale charge Actual tax paid Current pounds 2,770 pounds 693 New (1993/4) pounds 2,992 pounds 748 New (1994/5) pounds 4,596 pounds 1,149 ----------------------------------------------------------------------- Car Metro 1.1 Cylinder capacity 1,100cc Typical driver District nurse Marginal rate of tax paid 25% Annual buiness mileage Over 18,000 List price pounds 6,670 Scale charge Actual tax paid Current pounds 1,070 pounds 268 New (1993/4) pounds 1,156 pounds 289 New (1994/5) pounds 778 pounds 195 -----------------------------------------------------------------------

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy CMMT Comment & Analysis GOVT Taxes GOVT Draft regulations P9311 The Financial Times London Page 26 1018
The Budget (Analysis): Details satisfy majority of entrepreneurs - Small Business Publication 930317FT Processed by FT 930317 By CHARLES BATCHELOR

A CLEVER budget showing an understanding of the issues of concern to small businesses, was the near unanimous reaction of organisations representing small companies to the most wide ranging of small business budget packages in recent memory.

For a sector of the business community which has been particularly hard hit by recession, the chancellor's combination of tax changes, reductions in red tape, and adjustments to business support schemes came as a welcome relief.

Mr Norman Lamont's measures showed a fine feel for the detail of the problems which confront the small business owner within a framework which acknowledged the importance of their contribution to the economy.

The measures covered the full spread of the small business community from tax simplification for the self employed through to an easing of the capital gains tax burden on successful entrepreneurs selling their businesses.

The Loan Guarantee Scheme changes took in the struggling young business unable to match the bank manager's normal loan criteria. Cuts in export credit insurance premiums will help the medium-sized company trying to establish itself in overseas markets.

But set against the wide range of measures tailored for the small business, or intended to have the greatest impact in that sector, were a number of general measures which will have an adverse affect on small firms and the self employed.

Increases in petrol duties and the promise of steadily rising fuel prices in the years ahead were most unwelcome while the 1 percentage point rise in Class 4 National Insurance contributions by the self employed from 1994 were also met with dismay.

Turning to the chancellor's specific proposals, the steps announced to reduce red tape were widely welcomed.

The proposed simplification of the tax system for the self employed and the shift towards self-assessment hold out the promise of fewer night shifts spent making the tax books balance. The small business community has developed a wariness about the impact of attempts to deregulate so will wait to see how the changes work out in practice.

The announcement of a consultation paper on the subject of the small firms audit was also welcomed but the small firms audit has been debated for more than a decade and the banks, the Inland Revenue and at least one accountancy organisation still have considerable reservations.

If there is an issue which raises blood pressure among small firms even more rapidly than the administration of the tax system it is the penalties which are imposed when the business owner gets it wrong.

The announcement from the chancellor that the scope of the serious misdeclaration penalty is to be reduced and only the larger, persistent offenders will be pursued was particularly welcome.

The decision to give customs officers discretion to mitigate VAT penalties depending on individual circumstances was a significant easing of what has been widely seen as a draconian penalty system.

The decision to 'free' entrepreneurs locked into businesses which they could not sell without incurring sizeable capital gains tax liabilities will be welcomed by many ambitious business owners as well as by the venture capital industry.

Providing rollover relief to entrepreneurs who reinvest the proceeds of a sale in another unquoted business, should encourage the 'serial entrepreneur,' the businessman who goes on to found a second and even a third business.

Perhaps the most controversial move by the chancellor was to ease the conditions of the government's Loan Guarantee Scheme. He has moved to reduce the cost of scheme but his proposed changes will do nothing to reduce the dependence of the scheme on the willingness of the banks to take part.

An improved loan guarantee scheme is still only a half-way house towards a subsidised small business loan fund which the small firms lobbyists have been calling for for several years. There is still no real replacement in sight for the Business Expansion Scheme which expires at the end of the year.

Pleased though they are with budget measures announced yesterday, the small business groups are hoping for further action in this area in the November budget.

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy CMMT Comment & Analysis GOVT Draft regulations P9311 The Financial Times London Page 26 717
The Budget (Analysis): A chance to work out your own bill - Assessment Publication 930317FT Processed by FT 930317 By TONY ALLEN THE 8m people who receive a tax return every year

half of them self-employed, the others taxpayers such as directors of companies - will from 1997 be able to calculate their own tax liabilities.

If they opt for self assessment, they will make their own calculation, then send off a cheque to the Inland Revenue, based on how much they owe.

The Revenue will not check all these returns, but if they do, they will charge penalties and interest on those that are found to be incorrect.

This system will not affect the basic PAYE system for people who receive income from employment. But it will apply to all those who earn money in other ways, and currently fill in a Schedule D and investment income tax return. It will not affect people who claim repayment of tax on bank and building society interest.

People who opt to have the Inland Revenue work out their tax bill, as at present, will have to submit their tax returns six months earlier than those who opt for self assessment.

The Treasury has been talking about introducing this system for some time, and it has spent much of the past two years in consultations. The idea is one that is already in use in a number of other countries, particularly the United States.

One big change, however, that became clear yesterday, will alter the basic tax system in order to make it simple enough for the new self assessment approach to be workable. There will be two big changes:

All of a taxpayer's income will now be brought together on one tax form, whether it comes from employment, freelance earnings or investment. This means that a taxpayer will now only be dealing with one tax office.

The 'prior-year' basis currently used for self-employed income will now be abolished, and all income will be taxed on a current year basis. This means that tax will be paid on income from self-employment in the year in which it is earned, rather than a year later, as at present.

There will be transitional arrangements, which will leave some people as winners and some as losers. One year will drop out of the tax calculations, and whether you are a winner or a loser will depend on what sort of year falls out.

One complaint that emerged from the consultation process was that the Inland Revenue was not proposing to allow enough time for taxpayers to prepare for the shift to the new system. As a result, the start date has been deferred by another year until April 1997. Further consultation is proposed with representative bodies and employers on the details of the new system.

The author is a partner at Coopers & Lybrand.

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy CMMT Comment & Analysis GOVT Taxes GOVT Draft regulations P9311 The Financial Times London Page 26 504
The Budget (Analysis): Leg-up welcomed by Lloyd's - Insurance Tax Publication 930317FT Processed by FT 930317 By RICHARD LAPPER

YESTERDAY'S decision to modify the taxation of insurance reserves marks the successful conclusion of a long campaign by both Lloyd's of London and the UK's insurance companies. It was warmly welcomed by the industry.

New arrangements should improve the industry's ability to insure infrequent but severe catastrophe losses.

The most important change concerns the troubled Lloyd's insurance market. Under new rules, Names - the individuals whose assets support underwriting - will be allowed to establish more generous tax deductible reserves to meet future losses.

Mr David Rowland, chairman, said the industry had for some time 'been urging the government for equality of treatment with their continental competitors' by a change in the fiscal regime. 'The better-targeted reserve would increase Lloyd's ability to deal with the type of risk in which we specialise.'

A new tax deductible reserve will replace the special reserve fund, which allows Names to set aside up to Pounds 7,000 each year against higher-rate income tax. The level of the reserve has not been changed since 1955.

According to the arrangements which come into effect to cover the 1992 underwriting year, a Name will be able to transfer up to 50 per cent of profits to the new reserve each year, provided that the maximum value of the funds in the reserve does not exceed 50 per cent of the Name's overall premium income limit - the limit they can accept.

Amounts withdrawn will be made to fund losses or cash calls. Amounts withdrawn that are not used to meet losses will attract tax.

The chancellor also conceded that there 'may be a case' for allowing tax relief on certain types of 'equalisation' reserve, potentially extending a similar benefit for insurance companies. Most European insurers are allowed to establish such reserves. A consultative paper will outline options.

Mr Mike Jones, chief executive, of the Association of British Insurers, the trade association, said: 'It is obviously a step in the right direction. They have accepted the principle of change.'

Lloyd's has also welcomed the simplification of other aspects of Names' tax treatment; the most important concerns rules for the taxation of gains accruing from the capital appreciation of premium trust funds made up of premiums earned by underwriters. The chancellor proposes to tax such gains as income rather than capital, bringing Lloyd's into line with insurance companies.

GB United Kingdom, EC P6331 Fire, Marine, and Casualty Insurance P6411 Insurance Agents, Brokers, and Service P9311 Finance, Taxation, and Monetary Policy CMMT Comment & Analysis GOVT Taxes GOVT Draft regulations P6331 P6411 P9311 The Financial Times London Page 26 447
The Budget (Analysis): Mortgage lenders' fears dispelled - Housing Publication 930317FT Processed by FT 930317 By JOHN GAPPER

THE CHANCELLOR'S limitation of mortgage interest tax relief to 20 per cent from next year, and his attempt to stimulate house sales by doubling the threshold for stamp duty, are unlikely to have a dramatic effect on the housing market.

There had been some fear among mortgage lenders that Mr Lamont would try to enhance his reputation as a tax-reforming chancellor by taking more decisive steps to end the subsidy to homeowners represented by mortgage tax relief.

They feared that would stifle the nascent slight recovery in the housing market, expected by analysts in the coming year. The number of house price transactions is only expected to rise about 20 per cent from 1992.

Building societies were relieved that Mr Lamont made a relatively cautious adjustment to mortgage tax relief, and tried to balance it in the short-term with a measure to stimulate activity among first-time buyers.

The chancellor will raise Pounds 900m in 1994-95 by restricting the interest relief to 20 per cent. Individual borrowers will face a relatively slight increase in payments. Those with loans above Pounds 30,000 will pay about Pounds 10 more tax a month.

Some lenders believe that, combined with the end of tax relief at higher rates in the last budget, represents a signal that mortgage tax relief will eventually be phased out. The length of time that would take has reassured some.

The stamp duty adjustment was trickier measure about which to convince borrowers and lenders. That is because the temporary abolition of stamp duty on properties worth up to Pounds 250,000 at the end of 1991 was judged a failure.

It did little to stimulate the housing market until close to the deadline last year, and then the fall in transactions following the deadline was greater than the stimulus before, causing much discontent among lenders.

Mr Lamont avoided the trap of another temporary adjustment. Instead he tried to concentrate stamp duty reform on first-time buyers, doubling the threshold to Pounds 60,000. That is intended to provide a steadier stimulus to the market.

He also implemented a solution to the 'negative equity' problem affecting people who own properties worth less than the purchase price. They will now be able to transfer tax relief to a new property on the old loan.

Mr John Wriglesworth, analyst at UBS Phillips & Drew, said the net effect of the measures would be 'nothing'. He believed the measures would not affect the likely small upward movement in house transactions this year.

GB United Kingdom, EC P6162 Mortgage Bankers and Correspondents P1521 Single-Family Housing Construction P6531 Real Estate Agents and Managers P9311 Finance, Taxation, and Monetary Policy CMMT Comment & Analysis GOVT Taxes GOVT Draft regulations P6162 P1521 P6531 P9311 The Financial Times London Page 26 475
The Budget (Analysis): Formula for future financial turbulence - Raised forecasts for the UK budget deficit will add to jitters in the market for government bonds, says Barry Riley Publication 930317FT Processed by FT 930317 By BARRY RILEY

The debt mountain is getting steeper. By setting his borrowing target for the next financial year at Pounds 50bn, some Pounds 6bn more than his implied forecast last November, and towards the top of the range of expectation in the gilt-edged market, Mr Norman Lamont has increased the danger that financial turbulence will develop over the next couple of years. Certainly the medium term outlook for public finance looks troubled.

In pulling his punches on tax in the near term - with a neutral overall impact on revenues in 1993-94 - the chancellor has followed the line of six of his seven Wise Men. At least as influential, however, may have been the smoothness with which the funding task has been accomplished so far. The jump in the PSBR from Pounds 14bn in 1991-92 to Pounds 35bn in the financial year now ending has been financed without crisis and at progressively lower interest rates.

But already the influence of the global bond markets has become slightly less benign in the past week or so, with the US long Treasury bond yield flicking up slightly from its recent 20-year low. As for UK government securities, there was inevitably a setback last night, with falls of just over a point at the long end.

First, however, the positive news for gilts. The widely expected relaxation of the full funding rule duly appeared, with the introduction of a new provision that gilts sold to banks and building societies will count towards funding.

This appears to fall a little short of a more comprehensive concession that all purchases of public sector debt, including for instance Treasury Bills, would count as funding. However, it is theoretically possible that the UK banking system, which at present has only about 3 per cent of its assets invested in the public sector, could absorb a substantial proportion of the coming year's gilt issues - between Pounds 10bn and Pounds 20bn, say.

As part of the flexible funding policy the market would have also liked to see a formal target range set for the broad money supply, M4. The woolliness and inconsistency of monetary policy therefore remains a worry.

Second, Mr Lamont has uttered an Augustinian vow that virtue will be achieved in the medium term. He has proposed 'wedges' of new taxation for 1994-95 and later years, and on the basis that the economy picks up speed through the mid and late 1990s the Treasury's computer has been able to crank out some declining, although still substantial, numbers for borrowing.

If growth continues to be disappointing, of course, the problem will not fade away as outlined. And even if all goes according to plan the burden of debt will rise substantially: from around 40 per cent of national income at present, public sector indebtedness is likely to climb to at least 60 per cent in another four years.

In itself that would be no worse a position that in the late 1970s and early 1980s. But in the past it has taken several episodes of double-digit inflation, and a ruinous credit-based boom which pushed the public sector into temporary surplus, to control the debt burden. This time, if the government delivers its promise of low inflation, the real cost will be much higher.

Yesterday Mr Lamont promised inflation of 2 1/2 per cent or less (in the bottom half of the 1 to 4 per cent target range) by the end of the present Parliament. But borrowing at the long end of the conventional gilts market at present costs 8.3 per cent. The implied real rate of almost 6 per cent will impose a heavy burden on future taxpayers.

What is the tactical room for manoeuvre? First of all, the government can now look to the banking sector. Already the banks and building societies have bought Pounds 5 1/2 bn of gilts in the first eleven months of the current financial year, although under the previous rule this has had to be duplicated by funding elsewhere.

Now the authorities are in a position to pursue active selling to the banks. But they will not normally, the Treasury says, sell gilts of shorter maturity than 3 years. Nor will banks typically wish to buy gilts further out than five years because the capital risk becomes considerable.

The banks will buy only if they are offered a worthwhile yield incentive and are confident that money market rates will stay low. It is on this basis that banks in the US have bought vast quantities of public sector debt.

In the UK, however, the yield curve is all wrong at the short end. There is no margin between 6 per cent money market rates and the redemption yield on three-year gilts. Either base rates must go down to 5 per cent or less, or the authorities must pump out new short gilt issues on a 7 per cent yield basis, which would disrupt the market. So we must wait for serious action, perhaps until a significant drop in German interest rates allows sterling rates to be cut too. But serious action there must be, and soon.

Who else will take up gilts? The life assurance companies have been active buyers, but pension funds were again net sellers last year, for the sixth year in a row. In all, investment institutions have an annual cash flow of about Pounds 38bn a year, but that is unlikely to grow significantly, and in the past they have never put more than about 50 per cent of new cash into gilts.

Note, however, the attack on pension fund equity holdings through the cut in reclaimable income tax. Is this the start of an attempt to tilt the tax playing-field in favour of gilts? The temptation will grow for this and future chancellors if the deficit problems prove as bad as they are now outlined.

The other possibility is to sell debt to foreigners. Since last August overseas investors have turned their noses up at gilts, but they might become interested again should sterling strengthen convincingly against the Continental currencies. Then there is the possibility of borrowing in foreign currencies. This year the balance of payments deficit is forecast at Pounds 17.5bn, which the chancellor claimed yesterday would be 'easily financeable': soon his agents at the Bank of England will have a chance to demonstrate just how facile a process it can be.

Gimmicks such as tax-free gilt plans for private investors have rightly been shunned. The chancellor is relying on the arithmetical approach, that whatever the size of the deficit there must be balancing surpluses somewhere that can be tapped. But the bigger the deficit the less the likelihood that the financing can be done without periodic crises. The higher you climb up the debt mountain the harder you may fall.

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy P6211 Security Brokers and Dealers MKTS Market data P9311 P6211 The Financial Times London Page 25 1199
The Budget (Analysis): Tax change which will move markets - John Plender says reforms to ACT may be esoteric but will have far-reaching effects Publication 930317FT Processed by FT 930317 By JOHN PLENDER

Changes in the treatment of advance corporation tax (ACT) may sound esoteric, but they are among the most important reforms in the budget. This is partly because anomalies in the current system greatly distort corporate investment decisions. For many of Britain's larger companies which have substantial tax liabilities in foreign countries as well as in the UK, the impact of ACT incorporates a powerful incentive to incur high costs overseas and to generate high profits in the UK. One result of this quirk, which British multinationals have frequently brought to the Treasury's attention, is that there is a temptation to move knowledge-intensive activities such as research and development to foreign subsidiaries.

But Mr Lamont has used the opportunity presented by this problem for a more fundamental reform of the tax credit arrangements that apply to companies and shareholders. This will have implications both for the stock market, and for the income of institutional investors and higher rate tax payers.

The ACT problem began when Britain shifted from a 'classical' corporation tax to an 'imputation' system under the Heath government in 1973. In the classical system, the company pays corporation tax on its profits. Then, when it pays a dividend, the shareholder pays income tax on the receipt. The disadvantage of this system is that the owner's profit is taxed twice - once in the hands of the company, then in the hands of the shareholder when distributed.

Under an imputation system this double taxation is eliminated. Today British companies pay corporation tax at 33 per cent on profits. They then deduct 25 per cent of the gross dividends paid out, in what amounts to an advance collection of income tax. But the deduction is called advance corporation tax and can be offset against the mainstream corporation tax liability of 33 per cent on overall profits.

The problem of unrelieved, or surplus, ACT arises where company dividends are larger than the mainstream corporation tax bill in the UK. In the present recession, companies that are paying dividends out of reserves fall into this category. But the more important group consists of companies that earn most of their profit overseas. Since their UK tax liability is usually reduced by the amount of foreign taxes they pay, they can find themselves with inadequate mainstream tax against which to offset the ACT. So their foreign profits are taxed twice, abroad and at home.

Such companies will be pleased that the Chancellor has responded to their complaints. He proposes that dividends paid out of overseas profits should be separately classified as 'foreign income dividends'; companies would be entitled to a refund if the dividend payment gave rise to surplus ACT. But no tax credit would be available to shareholders on the dividend, which raises a question about whether dividend-conscious institutional investors might find such shares less attractive.

The more fundamental reform suggested by Mr Lamont is a reduction in advance corporation tax for all companies in two stages, from 25 per cent to 22 1/2 per cent in 1993-4, and 22 1/2 per cent to 20 per cent in 1994-5. At the same time the chancellor proposed to reduce the tax credit granted to shareholders in one go from 25 per cent to 20 per cent in 1993-4.

This is bad news for pension funds, which are exempt from tax on dividends. Until now, as owners of companies, they have been taxed at 33 per cent on a company's retained profit and 8 per cent - the difference between the tax credit of 25 per cent and the corporation tax of 33 per cent - on profit paid out as dividends. Henceforth, they will pay 13 per cent rather than 8 per cent on distributed profit. They will yield Pounds 1bn a year to the exchequer as a result of the change.

In theory, the pension funds will benefit, in the sense that the companies they own are expected to enjoy a cash flow benefit of Pounds 2bn from the changes over the next two years. The capitalised value of the potential tax relief to companies with surplus ACT problems should also, in theory, increase the value of the shares. But actuaries value pension fund assets on the basis of their income. And this will be reduced by the changes, implying, other things being equal, a lower yield on equities for the biggest group of share owners.

This could help the government's funding problems by slightly altering the relative attractions of gilts against equities. It could equally be seen as a backdoor way of reducing the cost of the tax reliefs granted on pension contributions. But then the Treasury has long been keen to find a way of clawing back some of this tax break.

The other possible losers could be bankers and brokers in the City. Finding UK acquisitions for companies with surplus ACT problems has produced a steady stream of lucrative fees for mergers and acquisitions specialists.

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy GOVT Taxes CMMT Comment & Analysis P9311 The Financial Times London Page 25 879
The Budget (Analysis): Major's second manifesto Publication 930317FT Processed by FT 930317 By JOE ROGALY

It is not so much a Budget, more Mr John Major's second election manifesto in a year. Rather like President Clinton in the US, the prime minister and his chancellor have collected every marketable proposal that a posse of policy wonks could think up and put the resulting list of items forward as a strategy for growth without inflation, a deficit-reduction plan that causes no obvious or at any rate immediate outstanding pain (except, marginally, to high earners), a road map for the coming three years. Running down its centre is a broad highway. The direction arrow contains the simple words 'general election 1996'.

Taken as a whole it will do what all manifestos do. It will initially befuddle the electorate. There was so much unnecessary detail in Mr Norman Lamont's inordinately long and at times soporific speech in the Commons yesterday that only the prime minister, whose personality this Treasury-driven peroration suited to a T, could possibly have enjoyed the occasion. I except the one good joke, at the expense of my trade, which was when Mr Lamont expressed doubt as to whether 'sewerage and newspapers' were 'clearly among the most basic necessities of life'. Touche.

Considered in bits the Budget he read out should satisfy several constituencies. There is plenty of material for Mr Major to draw upon whether or not he actually remounts his election soapbox when he asks his backbenchers, his party and the country to accept for a second time that he is the prime minister of their choice. For although he does not have to face the polls for another three or four years, he badly needs to regain his authority before that.

The government's offering to the City is 'grip' - a stated and barely credible determination to reduce the public sector borrowing requirement in stages over the coming few years. In this Mr Major has an advantage over President Clinton. His chancellor can put forward a finance bill this year that will provide for all the increases in taxation promised for next year and the year after and be reasonably sure that the bill will be passed. In the US, where a new energy tax is central to the administration's plans, there can be no such certainty.

Just a minute. Mr Major himself cannot be sure that his chancellor's extension of VAT to domestic fuel and power will be well received by the Commons. During the coming few weeks the Tory coal lobby will be asked to swallow its disappointment at the number of pits to be saved. It may be a bit tricky to get it to accept an impost that will discourage the use of all fuels after April 1994. Perhaps that is why one of the government's little birds whispered to me the other day that the prime minister had asked the cabinet to go easy on the Maastricht rebels. Their votes would be needed, Birdie said then, for coal closures and for any Budget measures that might prove awkward.

We must, however, wish the chancellor well on this. It is, a decent offering to the green lobby, and one for which all who value the environment should be grateful. Mr Major's commitment at the Rio conference last year to reductions of CO by the turn of the century is being three-quarters met. Mr Lamont will have known that such would be his master's wish. The only spoiler is that VAT on insulation materials was not simultaneously zero-rated.

The chancellor will be hoping for other kind comments today. Safe. Fiscally prudent. Stimulating. A Budget for the little people. A Budget for jobs. A Budget for small businesses, for the regeneration of industry, for the reduction of the deficit, for the greater glory of Britain. Good old Norman. He played to the Europhobic gallery. The cheers following the few passages in which he attacked the European Community must have been music to the chancellor's ears last night. But will they still love him in the morning?

This depends upon events beyond the government's control. Mr Lamont set out a list of measures designed to help the long-term unemployed. The total expenditure - Pounds 230m - and the total number of expected beneficiaries - 100,000 - is derisory even at first sight. The number of people out of work is 3m and rising. The long-term contingent is a third of that. This is seed money, little scatterings here and there. It is reminiscent of Mr Clinton's packages for the inner cities. It shows good intent, but will in itself do little to alleviate the fear in the hearts of many families that one of theirs will lose a job, or fail to find one.

The business measures should be welcome to those they benefit - small entrepreneurs, house builders, companies hurt by advance corporation tax, exporters. They too are, mostly, little alleviations, helpful in themselves, but as nothing to the effect of, say, a return to an annual rate of growth in gross national product of 2 to 3 per cent. There is nothing particularly strong or unexpected in the changes in excise duty. Even the 10 per cent increase in the price of petrol, coupled with a pledge to keep up the pressure in later years, should provoke only ritual howls of outrage from the motorists' organisations. We all know that we should use our cars less, or, at least buy fuel-efficient models. The changes in company car taxation will encourage this.

Some of the extra taxes announced yesterday may reasonably enough be derided by Labour as betrayals, in the spirit if not the letter, of promises made during last April's election campaign. The increase in national insurance contributions is an outstanding example. Mr Major showed during question time yesterday that he knows he will have to trade punches on this with the leader of the Labour party. More to the point, the prime minister has an ace up his chancellor's sleeve: a promise of an annual widening of the 20 per cent tax band. This gives verisimilitude to the Tories' commitment to bring the basic rate of personal income tax down to that level.

That pledge is one the government in general and the prime minister in particular take very seriously. As Mr Lamont came to the paragraph about the 20 per cent band yesterday my mind flashed back to last year's campaign, in which Mr Major spread his hands ever wider to demonstrate that that was what the government intended to do. It is clearly a marker for the next election. Cutting taxes for all lower-paid workers is still regarded as an election winner, even though the new bands add peanuts to their incomes, and take a larger number of peanuts away through non-indexation of allowances and the increases in national insurance.

In short, the Budget is a campaign manager's handbook. It enables Mr Major to engage the electorate in a fresh dialogue, in the manner of Mr Clinton. Mr Lamont may attempt the same exercise. Over the coming weeks, he plainly intends to. This is understandable. He would like to keep his job. His speech yesterday sewed up the November Budget and most of the following two. But Mr Lamont's tenure on his office depends upon forthcoming speeches - upon how he performs during Mr Major's summer campaign for the reassertion of the prime minister's own leadership. They could both be saved, if the economy revives and floats them out of danger. But that is up to fate, a force greater than any Budget.

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy CMMT Comment & Analysis P9311 The Financial Times London Page 25 1292
The Budget (Analysis): It really is an Augustinian Budget Publication 930317FT Processed by FT 930317 By SAMUEL BRITTAN

In previous articles I have urged the case for a Budget along the lines of St. Augustine's plea: 'Please God make me chaste, but not yet.' The Budget contains measures which will raise revenue by Pounds 6.7bn in 1994-95 and by Pounds 10.3bn in 1995-96, on an indexed basis. But they will yield less than Pounds 0.5bn - virtually nothing - in the coming financial year. The revenue-raising measures are to be enacted in the coming Finance Bill; so they are not in the category of so many American presidential promises to do better in later years.

Moreover, most of the tax measures are sensible reforms in their own right - with the exception of the lower-tier tax band. So if relaxations turn out to be required, because of the state of the economy a change in the Budgetary outlook or - a change in fiscal fashion, it would be very easy to reduce tax rates without going back on the present Budget. The revenue is mostly raised by removals or restrictions of reliefs, or abolition of exemptions. The two most important revenue raisers are the extension of VAT to domestic fuel and power and the increase in employee National Insurance contributions, which is almost the same thing as an increase in the basic rate of 1p in the pound for most taxpayers.

I should, however, break off the macro-economics to say that potentially by far the most important innovation came in a little-noticed paragraph towards the end. Here, Norman Lamont embraced on, an experimental basis to be tried in three or four regions, Professor Denis Snower's proposals to allow the long-term unemployed to transfer their dole money as a wage subsidy to a potential employer. I receive more letters from intelligent readers on the absurdity of paying the unemployed to do nothing rather than something than on almost any other subject. The announcement has the same kind of long-term potential as Nigel Lawson's embrace of 'profit-related pay' in his l986 Budget speech, which is only now beginning to take off.

It would, however, be idle to pretend that either of these measures, or both combined, or the other labour-market measures, will be remotely sufficient if there really is a long-term structural unemployment problem due either to deficient demand or to changes in the labour market detrimental to jobs and pay. The Budget speech did not really discuss these far-ranging issues - either on a British or an international basis. The Budget Red Book does however provide some material on which to reflect.

Nothing will stop financial readers from paying most attention to the projections of the public-sector accounts. These show the usual hump-backed picture. The deficit measured by the public sector borrowing requirement reaches a peak of Pounds 50bn or 8 per cent of GDP in 1993-94. It then gradually declines to Pounds 30bn or 3 3/4 per cent in 1997-98. In fact, the underlying decline is somewhat better, as privatisation proceeds tail off from Pounds 8bn in the year now coming to an end to Pounds 1bn a year in the second half of the 1990s.

What this Budget has really done is to substitute a medium-term fiscal strategy for a medium-term monetary one. This has been achieved by the device christened by the Treasury as the wedge which imposes very small tax increases in the coming year, but which build up to large amounts in the two years following.

The main fault of the Budget speech was that it was much too long and badly needed subbing. The strategic parts could have been highlighted very much more; and much of the detail could have been relegated to press notices or the Finance Bill. The chancellor will have to engage in this kind of subbing when the new unified November Budgets start. For it simply will not be possible to introduce yesterday's degree of tax accountants' detail into a speech which also covers spending.

Having said all this, a closer study of the Red Book reveals a fundamentally disquieting economic outlook. If one takes the Treasury's central projection, it is not until 1994-95 that growth, outside the North Sea, catches up with the present best-official guess of the growth of productive capacity, namely 2 1/4 per cent a year. Even in the later 1990s growth is only put at 3 per cent, leaving only a moderate and belated taking-up of the slack. As the second table shows, the growth projections are a good deal more pessimistic than those published a year ago. The implication is that unemployment and unused capacity will carry on rising, at least until 1995.

Not only have growth forecasts been revised downwards, but inflation prospects have been revised upwards. Underlying inflation is still expected to be down to 2 per cent by the later 1990s, but it is expected to remain in the 3 to 4 per cent band - the upper part of the chancellor's range - until well into the middle of the decade.

In a rather interesting innovation the Treasury publishes alternative growth assumptions for the medium term, from 1994-95 onwards. These are only half a percentage point on either side of the central projection. But they make an enormous difference to the PSBR projections. On the optimistic scenario the PSBR drops by 1997-98 to 2 1/4 per cent - within the Maastricht guidelines. On the pessimistic scenario it drops to only 5 1/4 per cent, which most mainstream analysts regard as unsustainably high.

If the more pessimistic growth rate is due to a low underlying rate of productivity increase, then there would be little disagreement that still more public spending curbs and/or tax increases would be required. But suppose low growth is instead due to deficient demand and a slack British or world economy, as is quite possible - although not as probable as most of the businessmen whom I meet seem to think. What would the implications then be? Surely, in such a case, either the deficit should be allowed to run; or retrenchment measures would have to be more than offset by a sufficient loosening of monetary policy.

These issues are entirely dodged by the Treasury documents. Monetary policy will supposedly be influenced by four main indicators - broad and narrow money, asset prices and the exchange rate. But despite the 'monitoring' ranges for the monetary aggregates, we are back to a state where the Treasury flies by the seat of its pants and weights the four in any way it likes, or can get away with.

I am not just making the usual teasing point. Nowadays, one should expect two main features from any monetary strategy. These are some assurance that demand in nominal terms will grow fast enough to avoid a prolonged depression, but also some assurance at the other end of the range that inflation will not be allowed to stray outside the government's own guidelines. Neither is provided; and the reduction of the section on the exchange rate to two brief historical sentences speaks volumes. A monetary strategy has still not been found to replace that of the ERM - which would in any case have had to be supplemented by a monetary strategy for all the core member countries.

----------------------------------------------------------------------- Prospects: the Treasury's view ----------------------------------------------------------------------- Public sector borrowing requirement (pounds bn) 1991-92 1992-93 1993-94 1994-95 ----------------------------------------------------------------------- General government expenditure 236.1 260 280 296 General government receipts 222.2 224 229 251 General government borrowing requirement 14.0 36 51 45 Public corporations' market and overseas borrowing -0.2 -1 -1 -1 ----------------------------------------------------------------------- 1995-96 1996-97 1997-98 ----------------------------------------------------------------------- General government expenditure 314 329 342 General government receipts 275 293 311 General government borrowing requirement 40 36 31 Public corporations' market and overseas borrowing -1 -1 -1 ----------------------------------------------------------------------- 1991-92 1992-93 1993-94 1994-95 ----------------------------------------------------------------------- PSBR 13.8 35 50 44 Money GDP 580.4 599 628 671 PSBR as per cent of money GDP 2.4 5 3/4 8 6 1/2 ----------------------------------------------------------------------- 1995-96 1996-97 1997-98 ----------------------------------------------------------------------- PSBR 39 35 30 Money GDP 716 756 792 PSBR as per cent of money GDP 5 1/2 4 1/2 3 3/4 ----------------------------------------------------------------------- Source: Red Book -----------------------------------------------------------------------

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy CMMT Comment & Analysis GOVT Draft regulations P9311 The Financial Times London Page 24 1391
The Budget (Analysis): A package good only in parts - Financial Times Publication 930317FT Processed by FT 930317

IN THIS, the last British Budget for revenue alone, Mr Norman Lamont's political job was to salvage the reputation of his party and of himself. He had to offer a credible prospect for economic recovery and a tolerable profile for public sector borrowing in the medium term, alongside imaginative ways of raising the money.

The mass of detail, particularly administrative detail, that the chancellor inflicted on his audience inevitably dulled the effect. But this is not the only reason why this Budget could do little to lift the hearts of his party, the nation or, for that matter, investors in government bonds, even though it should bring cheer to the boardrooms. The deplorable state of the public finances made it unavoidably depressing. Mr Lamont might have done better - not merely economically, but even politically - if he had made the best of his plight by being tougher. Nonetheless, he deserves at least one cheer for his efforts.

The central tasks the chancellor set himself were to help recovery and tackle the deficit in the medium term. On the recovery, he has taken three risks. First, by announcing tax increases of Pounds 6.7bn for 1994-95 and Pounds 10.3bn for 1995-96 from an indexed base, he may discourage spending almost as much as if those increases took effect this year. Second, by failing to guarantee anything like a balanced budget in the medium term he may have threatened prospects for still lower long-term interest rates. Finally, by failing to take more decisive fiscal action he may have given himself less room than he could to lower short-term interest rates if needed.

Since the second and third of these risks offset the first, the balance must be a matter of judgment. So far as the immediate recovery is concerned, Mr Lamont may well have judged rightly. Furthermore, even if he believes that 'interest rates at their current level are consistent with the achievement of the government's inflation objectives', Mr Lamont has room for manoeuvre on this most important of all instruments. In addition, by modifying the 'full-funding' rule, the chancellor will allow government borrowing to affect the growth of the money supply. Especially now that he has reinstated a monitoring range for broad money, this must be a sensible, though belated, change.

In his discussion of the ERM - the guiding light of monetary policy only a year ago - he even came close to suggesting that everything was for the best in the best of all possible worlds. The ERM had, it seems, helped to get inflation down when that had to be done and had then spewed sterling out precisely when it was opportune in order to lower rates. For the short term at least, Mr Lamont must be right in this judgment. In the light of the succession of monetary policy disasters, however, the question has to be whether the freedom of manoeuvre the government now enjoys will be used aggressively enough in the short term and wisely enough in the longer term.

Here the chancellor's medium-term fiscal judgment must be doubted. He is to be commended for proposing fiscal changes that will come into effect in 1994-95 and 1995-96. That is precisely what a medium-term strategy should provide for a country in the UK's current plight. The question is whether budget measures that deliver a fiscal adjustment rising from 1 per cent of gross domestic product in 1994-95 to 1.7 per cent in 1997-98 are enough.

Not only does the chancellor forecast a public sector borrowing requirement of 8 per cent of GDP in 1993-94, but it is still 3 3/4 per cent in 1997-98. Moreover, the ratio of net public sector debt to GDP is forecast almost to double, to 50 per cent, by 1998. Yet this, it should be recalled, was a government that promised not long since to balance the budget over the cycle.

The forecasts for growth of non-North Sea GDP that underlie these fiscal projections - 1 1/2 per cent between 1992-93 and 1993-94, followed by 2 1/4 per cent in 1994-95, 2 3/4 per cent in 1995-96 and 3 per cent thereafter - are not particularly optimistic. Nevertheless, much can still go wrong. Just how much is shown by perusal of forecasts made only a year ago - admittedly, just before an election - when the PSBR was supposed to be a mere 4 3/4 per cent of GDP in 1993-94 and 1 per cent in 1996-97.

Once the chancellor had made the bold decision to announce future tax increases now, he should surely have gone further. Increases of 3 per cent of GDP by 1997-98 would have given far more confidence that further tax increases would not be needed. Further action would have been particularly sensible for a British government that enjoys complete monetary policy freedom once more and is headed by a prime minister who mutters about strategies for growth. The chancellor may well find himself raising taxes again.

In its detail, the Budget is very good in some parts, not so good in others. It is a pity that the opportunity was not taken to announce the abolition of mortgage interest relief altogether, which would have done much to raise additional revenue. It is also a pity that the steady transformation of the 20p rate into a new basic rate of tax is making the structure of income tax system more complex. It is a pity too that the increase of one percentage point in employees' national insurance contributions guarantees further life for what is just another - and more regressive - income tax.

First impressions are that the balance of these measures, with large increases in revenue from VAT on domestic fuel and power and national insurance contributions, will be regressive. The chancellor insists they are broadly proportional, however, partly because of the restriction of the married couple's allowance and mortgage interest relief to the 20p rate and the changes in the treatment of advance corporation tax as well.

Unquestionably, there is much here to commend: the package of deregulatory measures for business, for example, and the measures to relieve the burden of surplus ACT. The Budget is cleverly green in its decision to raise the real burden of duties on petrol. Even more important is the chancellor's decision to raise revenue without increasing marginal rates of tax. Here he has done far better than Mr Clinton.

In the end, however, this is a Budget with lots of good little ideas rather than one good big idea. The exception is the decision to announce future tax increases now, the drawback being that this action does not go far enough. This was a competent and professional performance, but the country could have done with something a good deal more dramatic.

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy CMMT Comment & Analysis GOVT Draft regulations P9311 The Financial Times London Page 24 1172
The Budget (Analysis): A few more ticks than crosses - Tony Jackson assesses the impact on industry of the Budget and says the government's conversion to the cause of manufacturing is more than rhetoric Publication 930317FT Processed by FT 930317 By TONY JACKSON

This was billed as a Budget for industry, and not without reason. Manufacturers who sat down to listen to Mr Lamont with their shopping lists in front of them will have ended up with more ticks than crosses. There was more help on export credits, business rates and capital gains tax. There was no extension of VAT on food or children's clothes. There was a list of infrastructure projects, from the Heathrow line to the Channel Tunnel link. Above all, there was the remarkable concession on advance corporation tax.

Granted, there was one big omission: the extension of tax breaks on capital investment. Mr Neil Johnson, Director-General of the Engineering Employers' Federation, complained of the 'apparent lack of understanding' of the role of capital allowances in stimulating investment. 'This budget does nothing to bring about the massive switch from consumption to investment which is essential for lasting recovery'.

The same point was raised by the machine tool industry. 'We were disappointed', said the Machine Tool Technologies Association, 'that little emphasis was placed on improving investment in high technology. This Budget fell short of directly encouraging UK companies to invest and to meet the anticipated recovery'.

But this seems rather harsh. In its whole approach, the Budget shows that the government's conversion to the cause of manufacturing goes beyond rhetoric. There are two distinct themes. The emphasis on exports suggests that the decline in the manufacturing trade balance has the government badly rattled. The stress on small business shows it accepts that small and start-up companies are the most reliable source of new jobs.

The clamour for help on export credits would have been dismissed, in the high Thatcherite days, as a plea for competitive subsidy. There was none of that yesterday: instead, the Chancellor went out of his way to assert that the benefits enjoyed by UK exporters would now be as high as the average among the Group of Seven leading industrial nations.

Similarly, the chorus of complaints about advance corporation tax would in more robust days have been waved away. The level of dividends paid by companies to their shareholders, a Thatcherite might say, is a matter for the parties involved. If it leads to surplus ACT, the company is simply paying too much.

But the situation had two awkward consequences for UK investment. UK companies had an incentive to incur their expenditure abroad, as a means of keeping their UK taxable profits as high as possible. Just as important was the effect on foreign companies. Under the old rules, a US corporation running factories in Germany but with its European headquarters in the UK would be penalised, since it would pay surplus UK tax on dividends remitted to the US. Inward investment, it appears, is now too crucial to the UK economy for such an anomaly to be tolerated.

As for small business, the list of measures is as full as the average entrepreneur could realistically have hoped for. The freeze on the much-hated Uniform Business Rate has been continued for another year. There has been an extension of the loan guarantee scheme for small companies. When entrepreneurs sell their companies, they will be able to roll over their capital gains tax liability if they spend the proceeds on starting a new business: and so on.

More generally, there was collective relief in the business community yesterday that the Budget was neutral in its impact: in other words, that the government was not about to take risks with the recovery. As Sir Denys Henderson, chairman of Imperial Chemical Industries, put it: 'it was appropriate not to have increased the overall tax burden until the recovery is confirmed'.

Next year, of course, might be another matter. The hard-line Institute of Directors last night sounded a note of protest: 'we are alarmed that the tax increases from April 1994 will be equivalent fo more than a 5p increase in income tax. This is not sustainable, and business wants to see at least matching reductions in public spending'.

But as the Chancellor will have calculated, a year is a long time in the business cycle. In the meantime, it is hard to see that the government could have done much more without having more hard cash at its disposal. Indeed, in the matter of ACT, it showed considerable ingenuity in finding money to hand to industry by the simple expedient of picking the pockets of the investing institutions.

And above all, it continued to soothe and flatter industrialists. The only way to secure growth in the medium term, Mr Lamont said, was through the supply side of the economy. The greatest threat to recovery in the medium term would be excessive public borrowing. Above all, he said, he would resist job-destroying measures emanating from Brussels. 'That is why this government will never sign the Social Chapter'.

As Lord Keynes remarked, one of the crucial determinants for getting out of recession is the animal spirits of businessmen. How far the Chancellor has raised those spirits will not be immediately apparent. But he could be lucky in his timing; as he said yesterday, the latest survey from the Confederation of British Industry suggested that confidence among manufacturers was recovering already. At any rate, he has given the most concrete proof to date that the government is genuinely concerned about manufacturing. For industrialists with vivid memories of the very different climate of the 1980s, that is quite a lot to be getting on with.

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy CMMT Comment & Analysis GOVT Draft regulations P9311 The Financial Times London Page 24 977
The Budget (What It Means To You): Stamp duty and tax relief - Housing Publication 930317FT Processed by FT 930317 By SCHEHERAZADE DANESHKHU

THE chancellor announced two measures which would affect the housing market. Stamp duty threshold on new house purchases will be raised to Pounds 60,000 from Pounds 30,000 with immediate effect, in an effort to stimulate the bottom end of the housing market. The cost of buying homes priced at between Pounds 30,000 and Pounds 60,000 will be reduced by up to Pounds 600.

Mr Lamont announced that the rate at which mortgage interest tax relief at source will be given will be restricted to 20 per cent. That change would not be introduced until April 1994. At 7.99 per cent interest rates, the change will cost Pounds 2.50 a month on a Pounds 10,000 loan and Pounds 9.98 on Pounds 40,000.

Elderly people with life annuity home income plan schemes which allow them to draw down some of the savings invested in their houses will continue to attract relief at 25 per cent.

Mr Ian Darby at John Charcol, mortgage brokers, said his reaction to the proposals for the housing market was mixed.

'Raising the threshold on stamp duty should be beneficial for the first time buyers market but the erosion of Miras, even though at today's interest rates it means no more than a loss of Pounds 10 a month, will take it a step back.'

He was disappointed too that there was no mention of a base rate cut to help the market.

GB United Kingdom, EC P1521 Single-Family Housing Construction P6531 Real Estate Agents and Managers P9311 Finance, Taxation, and Monetary Policy GOVT Taxes GOVT Draft regulations P1521 P6531 P9311 The Financial Times London Page 22 291
The Budget (What It Means To You): Investing institutions hit - Advance Corporation Tax Publication 930317FT Processed by FT 930317 By BERNARD GRAY

SMALL SHAREHOLDERS may be forgiven for finding themselves bamboozled by the chancellor's reforms to dividends and Advance Corporation Tax.

Fortunately, the reforms will be quite painless for most investors. At present, shareholders are paid a dividend net of basic rate tax. For 25 per cent taxpayers that takes care of their full income tax liability, so there is nothing more to pay.

From now on, however, the tax credit will be reduced to 20p in the pound. That does not mean, however, that they will have to pay more income tax, because the basic rate of tax on dividends will also be reduced to 20 per cent. So basic rate taxpayers will notice no difference in practice. If they currently receive a 7.5p net dividend, they will continue to receive 7.5p.

Higher rate taxpayers will however notice a change. At present, they pay basic rate tax and they later have to pay another 15 per cent to make up their total liability of 40 per cent.

When the change occurs, they will only have paid 20 per cent up front, and will have to find an extra 20 per cent later. The overall bill will have increased.

Non-taxpayers and investing institutions will also suffer. At present, they can claim back the 25 per cent tax credit. When the system is fully in place, they will only be able to claim the lower 20 per cent credit and will consequently lose out.

The change will lower the gross yield on the market and will affect the big institutions. It may diminish their appetite for holding shares and will possibly be reflected by a fall in the stock market.

For companies, the change means that they will pay less in ACT and more in mainstream corporation tax, but for a conventional UK company the total tax burden will not alter.

They will, however, have deferred paying some ACT at the time of dividends until they are due to pay corporation tax later. That will improve UK industry's cash flow by some Pounds 2bn a year.

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy GOVT Taxes GOVT Draft regulations P9311 The Financial Times London Page 22 387
The Budget (What It Means To You): Few gains and some new pain - With its focus on business, the package involves little change for individuals Publication 930317FT Processed by FT 930317 By PHILIP COGGAN

The chancellor's focus on reviving the business sector meant that this was largely a 'so what?' Budget for the individual. Such measures as were announced were bad for most people - in particular, the introduction of VAT on fuel and power, which will be particularly felt by the poor.

On the direct taxation side, the main impact will be the restriction to 20 per cent of reliefs on mortgage interest, the married couple's allowance and company dividends.

A lot of the other direct tax announcements involved 'no change' - to personal allowances, the higher rate band, the annual capital gains tax allowance and the inheritance tax threshold. Given the steady drag of inflation, this effectively (but surreptitiously) leaves individuals worse off. Apart from fuel, the main indirect tax changes - on petrol, alcohol, tobacco and others - were the sort of clobbering consumers have come to expect from Budgets.

For the personal saver, there was little change, apart from the restriction on BES plans involving loans. The 'dogs that did not bark' included the inclusion of gilts within personal equity plans, a change widely expected in the industry but which the chancellor, despite his need to sell government securities, decided not to deliver.

However, some good news emerged. National Savings is relaunching its First Option Bond, which proved so attractive to savers last year that the building societies bitterly complained. The new bond will pay 6.34 per cent gross, if held for one year. Furthermore, there were increases in the amount of other certificates savers can hold - from Pounds 5,000 to Pounds 10,000 for both the 40th fixed and the 6th index-linked issues.

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy GOVT Draft regulations P9311 The Financial Times London Page 22 328
The Budget (What It Means To You): Changes to NICs will bite next year - Direct Tax Publication 930317FT Processed by FT 930317 By JOHN AUTHERS

THE BUDGET'S changes to direct taxation are piffling for most taxpayers.

By expanding the 20 per cent band by another Pounds 500 from its current Pounds 2,000, all those whose annual pay exceeds their annual income tax allowance by Pounds 2,500 or more - a majority of taxpayers - will receive an extra Pounds 25 per year.

Income taxpayers also know that they have another Pounds 25 to look forward to next year, as the band will expand by another Pounds 500.

Much worse news comes from the changes to National Insurance, which will not bite until the 1994-95 tax year. An increase of one percentage point (from 9 to 10 per cent) in the rate at which Class I National Insurance contributions are levied means that those earning Pounds 405 or more per week will be worse off by Pounds 3.51 per week - Pounds 182.52 per year. An extra 1 per cent is also being levied on self-employed contributions.

The 10 per cent band rate of NICs will be levied on any weekly earnings in excess of Pounds 54. No NICs need be paid on earnings in excess of Pounds 405.

This means that those on Pounds 100 per week will be worse off by 46p per week, those on Pounds 200 will lose Pounds 1.46 weekly, and those on Pounds 300 will be down by Pounds 2.46. However, while the limit remains in place, nobody will be worse off by more than Pounds 3.51 weekly.

For the year 1993-94, nobody with two children or more will be worse off, according to the government's figures, with those on Pounds 80 per week set to benefit by 1 per cent per week.

In percentage terms, no one who does not receive child benefit will be better off by more than 0.5 per cent per week. Those on Pounds 450 per week stand to be worse off by 0.2 per cent, while those in higher income brackets will be worse off by 0.1 per cent.

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy GOVT Taxes GOVT Draft regulations P9311 The Financial Times London Page 22 382
The Budget (What It Means To You): Polite financial advisers point to neutrality - Savers and Investors Publication 930317FT Processed by FT 930317 By SCHEHEREZADE DANESHKHU

A NEUTRAL Budget for savers and investors was the verdict of the financial advisers too polite to call it a dull Budget.

'Investors are not particularly damaged by this Budget,' said Mr James Higgins of financial advisers Chamberlain de Broe, 'but it did not throw up new opportunities either.' One which had been expected but did not emerge was the extension of personal equity plans to shield gilts - already exempt from capital gains tax - from income tax too.

The chancellor's decision to freeze personal allowances means everyone will effectively be paying a little more tax. However, basic rate taxpayers have fared marginally better than higher rate taxpayers, according to Mr Higgins. Higher rate taxpayers will be paying an extra 20 per cent on their dividend income from shares instead of 15 per cent.

The proposal to restrict the married couple's allowance to lower rate relief of 20 per cent from April 1994 will have the effect of turning it into a tax credit, according to Mr John Cole of Berry Birch & Noble financial advisers. The maximum benefit that can be derived from it will be Pounds 344 rather than the Pounds 688 which it is worth to high rate taxpayers.

The change most likely to make a difference to personal financial planning is the reduction of mortgage interest tax relief (Miras) from 25 per cent to 20 per cent from April 1994, according to Mr Cole.

He said he expected new restrictions on job relocation expenses to hit many people and was surprised that a rise in national insurance contributions was aimed exclusively at employees. Moves towards tax self-assessment from 1996 were welcomed. 'It will make life much simpler, particularly for the self-employed.'

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy P6211 Security Brokers and Dealers P6162 Mortgage Bankers and Correspondents P6035 Federal Savings Institutions GOVT Government News GOVT Taxes GOVT Draft regulations P9311 P6211 P6162 P6035 The Financial Times London Page 22 353
The Budget (What It Means To You): Highest earners suffer largest cash losses - Winners and losers / An analysis by The Institute For Fiscal Studies Publication 930317FT Processed by FT 930317

The chancellor delivered two Budgets yesterday. One was a set of tax measures for immediate implementation, described as 'broadly neutral'; the other was a second set which, from 1994-95, will raise substantial sums for the exchequer.

While the measures for immediate implementation have little effect on aggregate tax revenues, they are far from neutral in terms of their effect on the distribution of income. This article, therefore, begins by setting out the distributional effects of those immediate measures on households of different types and at different levels of income. It also offers some preliminary reflections on the likely distributional effects of the longer-term measures.

We examine how the measures the chancellor actually announced compare with a 'do-nothing' Budget which merely increased all tax allowances and thresholds in line with inflation and made no changes to direct tax rates. The analysis includes all the main changes to income tax and excise duties announced for 1993-94 but does not include changes to stamp duty, business taxes or the abolition of car tax previously announced in the autumn statement. The results are obtained by applying the 1993 Budget measures to a representative sample of households drawn from the Family Expenditure Survey using the IFS computer model of the personal tax and benefit system.

The first chart shows the immediate effect of yesterday's Budget on the annual disposable income of households of different types. The bottom line of this chart shows that households as a whole are Pounds 43 per year worse off. It should be remembered that this small net increase in taxation is consistent with the chancellor's claim to have introduced a neutral package for 1993-94 mainly because it does not take into account the cut in car tax which some of this year's tax increases are intended to finance.

While the average effect of the Budget measures is a relatively modest loss of Pounds 43 per year, the chart shows that this effect is by no means uniform across different family types. The smallest losses occur among households where there is nobody in paid employment. As well as the unemployed households who lose up to Pounds 30 per year, this category also includes single parents who lose about Pounds 15 per year and pensioner households who lose up to Pounds 33 per year.

The source of these losses among the non-employed population is primarily the changes to indirect taxes announced yesterday. Though largely unaffected by the changes to income tax, these groups do tend to lose from the above- inflation increases in the excise duty on beer, wine, tobacco and fuel. The only excise duty not to be raised in line with inflation was that on spirits, which is of relatively little importance to these low income groups.

The larger losses are concentrated among households where one or more member is in employment, and in these cases annual losses typically lie in the range Pounds 60 to Pounds 80 per year. In addition to the losses imposed by increases in the rate of indirect taxes, these groups also suffer from the freezing of personal income tax allowances. Nonetheless, the overall impact on these groups taken as a whole is relatively modest, amounting to less than Pounds 2 per week on average.

The effects of the Budget measures for 1993-94 on households at different levels of income is shown in the second chart. This collects the UK household population into 10 groups with the poorest tenth labelled 'Decile 1' and the richest 'Decile 10'. This chart shows clearly the way in which losses from the Budget become substantial only for the highest earners. Only in the top 30 per cent of the population do average losses from the Budget rise above Pounds 52 per year or Pounds 1 per week.

There are a number of reasons why those on the highest incomes suffer the largest cash losses. The first is that they tend to use larger absolute amounts of excisable items such as fuel and so their absolute loss from over-indexation is larger than that for poorer households. Second, the chancellor continued the Conservative tradition of increasing the tax levied on users of company cars, and this will tend to hit high earners hardest. Finally, the chancellor froze the point at which higher rate tax becomes payable. As a result, during the coming year many of those whose incomes are just too low to make them higher-rate taxpayers will drift into the net of higher rate tax.

This increase in the number of higher-rate taxpayers has in fact been an almost unnoticed revolution of Conservative tax policy during the last 14 years. Back in 1979 there were fewer than 700,000 higher rate taxpayers. In the current financial year the total number is more than 1m higher and is set to rise still further in 1993-94. This is the third time in four years that a Conservative chancellor has frozen the threshold at which higher-rate tax becomes payable. It would seem that as well as aiming to increase the width of the reduced rate band the government is also aiming to widen the scope of higher-rate income tax.

One of the few factors which reduces the average losses reflected in the two charts was the chancellor's final announcement that the 20 per cent band will be widened to cover the first Pounds 2,500 of taxable income in the coming financial year. While this move partly offsets the effects of other tax increases, it is however inadequate to prevent the vast majority of taxpayers from being worse off.

Had the chancellor chosen simply to index the 20 per cent band it would have increased from its present width of Pounds 2,000 to Pounds 2,100. Thus the chancellor widened the band by only Pounds 400 more than was necessary to keep pace with inflation. This measure saved a basic rate taxpayer 5 per cent of Pounds 400, or Pounds 20 per year. It was indeed a modest step on the road towards a 20p basic rate for all.

This then is the immediate effect of the measures announced for the coming financial year. The effects on the distribution of income could be said to be relatively minor, with even the richest tenth of the population losing less than Pounds 3 per week. The same cannot be said however of the measures foreshadowed by Mr Lamont for the coming financial years.

Of the measures promised for 1994-95 and beyond, a number will have significant effects on household disposable incomes, and will on average produce far greater losses than the measures for the current year. By far the most significant in terms of its effect on household incomes is the proposed extension of VAT to domestic fuel, first at a rate of 8 per cent in 1994-95 and then at the full 17.5 per cent in 1995-96. Given that fuel forms a significant part of the expenditure of low-income households, this measure taken alone could bear particularly heavily on the poor. In recognition of this fact, the chancellor has indicated that income-related benefits will also be increased, and it seems possible that the groups who lose most will be those relatively low income households just beyond the scope of the income-related benefit system.

Other measures announced by the chancellor will bear rather more heavily on high income households. In a previous Budget, Mr Lamont restricted the value of tax relief on mortgage interest payments so that they were worth the same to higher-rate taxpayers as to basic rate taxpayers. From April 1994, this process will be taken one step further with the value of the relief being restricted to the reduced rate of 20 per cent for all homebuyers. It seems likely that this marks a further important step on the road to the eventual abolition of mortgage interest relief.

A second allowance to be restricted to the reduced rate is that for married couples. This change would have had a particularly large impact on pensioner couples who currently enjoy a higher tax allowance, but the chancellor is also proposing some increases to pensioner allowances so that they suffer no more than married couples below pension age. Again, it is hard to avoid the conclusion that the days of the married couple's allowance are also numbered.

A final direct tax measure proposed for 1994-95 is an increase in the rates of National Insurance Contributions for employees and the self-employed. This will affect only the non-pensioner population (since pensioners are exempt from NICs) and will add further to the already significant increases in taxes planned for the coming years. The losses from the measures to be introduced in 1994-95 will make the losses produced by this year's changes seem trivial by comparison.

Article and charts prepared for the FT by Steven Webb of the Institute for Fiscal Studies

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy GOVT Taxes GOVT Draft regulations P9311 The Financial Times London Page 22 1523
The Budget: Chancellor's big day moves to November Publication 930317FT Processed by FT 930317 By PETER NORMAN, Economics Editor

The spring revenue-raising Budget, that symbol of winter's end and harbinger of longer and brighter days, is no more.

Administrative pressures have dictated that the new unified tax and spending Budgets, that will determine the nation's finances from 1994-95 onwards, have to be decided well ahead of the tax year beginning on April 6.

The Treasury has announced that the first of the new unified Budgets 'will be no later than the last week of November' this year.

The finance bill that follows that Budget will be published in January instead of late spring, giving taxpayers and their advisers a clear idea of most tax changes well before the date that they take effect.

Until this year, the legislative changes announced in the Budget were not published until after the start of the tax year.

The new unified Budget will also eliminate one of the two separate income tax coding exercises that take place early each year under the pay-as-you-earn income tax scheme (PAYE).

In future, it should be possible to meld the annual mid-January coding with changes determined in the Budget so that employers have to implement only one set of coding changes in time for the start of the tax year on April 6.

As at present, governments will have to raise some taxes such as excise duties on wines and tobacco overnight after the Budget. It is doubtful whether these increases in the approach to Christmas will add to a government's popularity.

There will be a problem in forecasting the economy for the year ahead and especially in determining the public sector borrowing requirement more than four months ahead of the new financial year.

The Institute for Fiscal Studies has calculated that average PSBR forecasting error could rise to around pounds 5.7bn with November budgets from the pounds 4.7bn average over the past 10 years.

Budget day wil be a bigger challenge for the Chancellor, parliament and the press. The Budget speech will be longer because it will have to include details of the government's spending plans. The record to date is held by William Gladstone, who spoke for four hours and 45 minutes in April 1853.

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy GOVT Government News GOVT Taxes P9311 The Financial Times London Page 21 400
The Budget: Postponing of tax rises welcomed by economists Publication 930317FT Processed by FT 930317 By DAVID MARSH, PETER MARSH and JAMES BLITZ

MR LAMONT'S strategy of postponing tax increases to steer the economy out of recession was given a general welcome by academic and business economists.

Professor Wynne Godley, professor of applied economics at Cambridge University and one of the government's seven independent economic advisers, called the delay in tax rises 'absolutely excellent'.

Prof David Currie, head of economic forecasting at the London Business School, another of the 'seven wise men', called the Budget 'reasonably favourable.'

He added, however: 'It was a bit light on medium-term financial strategy. It didn't really address concern that the low exchange rate could feed through to prices.'

Professor Patrick Minford of Liverpool University, another of the 'wise men' said: 'The Budget contained some unnecessarily depressing arithmetic. The tax rises from 1994-95 on are not needed since the fiscal deficit will come down as recovery takes place.'

Mr Andrew Sentance, economics director of the Confederation of British Industry said: 'I would give Mr Lamont seven marks out of 10. In spelling out a programme of tax increases, he is responding to financial markets' concerns but is running the risk of damaging confidence in the short term.'

Mr Andrew Britton, director of the National Institute of Economic and Social Research, and a member of the government panel, said he was pleased the Budget was 'broadly neutral'.

Mr Britton added, however, that the chancellor should have greatly increased funds targeted to help for the unemployed while aid for industry appeared ill-targeted. 'The funds for the unemployed are much too small. We're going to have an output recovery, but not an employment recovery.'

By contrast, Mr Roger Bootle, chief economist at Midland Bank, said: 'I would have liked Mr Lamont to have been much tougher on tax es in the coming financial year and to have eased monetary policy at the same time.'

Mr Robert Thomas, head of research at the capital markets division in of National Westminster Bank, said: 'On balance the Budget was as good as anyone could have expected. I was worried by the projection of a Pounds 50bn government deficit next year.' Mr Steve Hannah, chief economist at IBJ International in London, described the speech as a 'reforming budget' which the market would take some time to absorb.

Professor Tim Congdon, economic adviser at the Gerrard & National, discount house, and another of the seven wise men, said: 'I welcome the tax increases but the reaction from financial markets would have been much better had they come in straight away. The chancellor has not got the right balance between fiscal and monetary policy.'

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy GOVT Taxes CMMT Comment & Analysis P9311 The Financial Times London Page 21 472
The Budget: Medium-term growth projections revised down Publication 930317FT Processed by FT 930317 By PETER MARSH, Economics Correspondent

THE Treasury has revised down its projections for medium-term growth in the UK after taking into account the effects on industry of the recession and the dim prospects for the world economy.

Officials are projecting average annual growth over the next four years of 2.5 per cent, slightly under 1 percentage point less than the assumption in the Budget a year ago.

They are also assuming that, as a result of weaker economic activity than that expected in the 1992 Budget, tax revenues will stay relatively low for a considerable period. That is likely to keep the fiscal deficit at a high level at least until 1997-98.

Over the next year, the Treasury is predicting a weak recovery in the UK driven largely by increased exports and company activity, rather than any marked increase in consumer spending. It says the international outlook is marred by weakness in Germany but could be helped by signs of a recovery in the US.

In an analysis of economic prospects released with the Budget statement, the Treasury says that, as a result of spare capacity in industry, 'inflation is assumed to fall further in the medium term'.

It warns, however, that after sterling's exit from the European exchange rate mechanism 'there may be little progress (in inflation) over the next two years if the current level of the exchange rate continues'.

The Treasury is forecasting growth of 1.25 per cent in gross domestic product this year, close to the consensus estimates in the City and slightly higher than its forecast released in the November Autumn Statement of 1 per cent.

It is postulating a pick-up in total UK output towards the end of this year, with growth between mid 1993 and the middle of next year of 3 per cent.

Consumer spending is thought likely to expand by just 1.25 per cent this year, picking up only slightly to 1.75 per cent between the first halves of this year and 1994.

Export growth is projected to pick up from an annual rate of 5.5 per cent this year to one of 10.5 per cent by the middle of next year as sterling's devaluation makes UK goods more competitive overseas.

Economists at the Treasury take a more gloomy view about longer-term growth prospects than at the time of last year's Budget, which occurred a month before the general election.

In 1993-94, it is assuming growth of 2 per cent, followed by 2.5 per cent in 1994-95 and 2.75 per cent in each of the two following financial years.

A year ago it assumed gross domestic product would rise by 3.25 per cent in 1993-94, followed by growth of 3.75 per cent, 3.5 per cent and 3.25 per cent in the next three financial years.

Taking into account the tax-raising measures announced yesterday, government revenues are now thought likely to increase from Pounds 229bn in 1993-94 to Pounds 293bn by 1996-97. In last year's Budget the corresponding projections were for Pounds 247bn and Pounds 312bn respectively.

With government spending over the medium term also set to rise faster than projected a year ago, the government deficit is projected in the latest Treasury statement to move from Pounds 50bn in the financial year starting next month to Pounds 35bn in 1996-97 and Pounds 30bn the following year.

In the last Budget, the Treasury theorised that the deficit would come down from Pounds 32bn in 1993-94 to Pounds 19bn in 1995-96 and Pounds 6bn in 1996-97.

Non-oil business investment in the UK is expected to rise modestly by 1 per cent this year, but company profits are likely to move relatively quickly 'as demand rises, firms continue tight control of labour costs and pressure on margins eases'.

The Treasury says that the trough in business investment as a share of gross domestic product is likely to occur in the first half of 1994, at a level 'well above' those seen in the previous recessions in the past 20 years.

The Treasury reckons the UK's volume share of total world trade in manufactured products will rise to about 5.7 per cent by the middle of next year from just under 5.5 per cent last year.

It says that 'while import growth outstripped demand growth' in the UK last year, the degree of import penetration was 'not out of line with its long-term trend'.

------------------------------------------------------------------------ TREASURY'S ECONOMIC PROJECTIONS ------------------------------------------------------------------------ 1992 1993 Latest March 1992** Nov 1992 ------------------------------------------------------------------------ Gross domestic product -0.5 3 1 Non-oil GDP -0.5 3 0.75 Manufacturing output -0.75 3.75 11.5 Consumer spending 0.25 3 1.25 Government consumption -0.25 1.25 0.5 Fixed investment -0.75 3.5 0.25 Exports 2 6.5 5.5 Imports 5.25 8.25 5.75 Current account deficit (Pounds bn) 12 9+++ 15.5 Inflation**** 3.75*** 3.25++?? 3.75*** GDP at current prices (Pounds bn) 599 663 629 Government spending (Pounds bn)* 260 280 n/a Government receipts (Pounds bn) 224 247 n/a Govt. borrowing (Pounds bn) 35 32 c44 ------------------------------------------------------------------------ 1993 1994 Latest Latest** ------------------------------------------------------------------------ Gross domestic product 1.25 3 Non-oil GDP 1 2.25 Manufacturing output 2.75 Consumer spending 1.25 1.75 Government consumption 0.25 1.25 Fixed investment 0.5 2.75 Exports 5.5 10.5 Imports 4.75 9.25 Current account deficit (Pounds bn) 17.5 18.5 Inflation** 3.75*** 3.75++*** GDP at current prices (Pounds bn)??? 628 671 Government spending (Pounds bn)???* 280 296 Government receipts (Pounds bn)??? 229 251 Govt. borrowing (Pounds bn)??? 50 44 ------------------------------------------------------------------------ Notes: all figures are year on year percentage changes, unless otherwise stated. *including privatisation proceeds; ??? financial year; +++ at an annual rate; **** Q4 on Q4 unless stated; ++ Q2 on Q2; *** RPI less mortgage interest payments; ?? RPI; ** year-on-year forecasts to first half of calendar year unless otherwise stated. ------------------------------------------------------------------------ Source: Treasury data from November 1992 Autumn Statement, and March 1992 and March 1993 Budgets ------------------------------------------------------------------------

GB United Kingdom, EC P9611 Administration of General Economic Programs P9311 Finance, Taxation, and Monetary Policy ECON Economic Indicators P9611 P9311 The Financial Times London Page 21 1005
The Budget: Crossrail may be delayed Publication 930317FT Processed by FT 930317

CROSSRAIL, the Pounds 1.7bn cross-London rail-link, could be delayed following the chancellor's announcement yesterday that it would be a joint venture between the public and private sectors. Work on the London Underground-British Rail link was originally to start in 1995.

Mr Lamont also announced that the Pounds 300m Heathrow Express line (above) and the Pounds 3bn channel tunnel high-speed rail link are to go ahead. The 15-mile Paddington-Heathrow fast link - a joint venture between BR and airport operator BAA - will be started later this year.

CrossRail GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy P9621 Regulation, Administration of Transportation RES Facilities P9311 P9621 The Financial Times London Page 21 125
The Budget: It was 'a Budget for his job' - Paul Cheeseright hears Birmingham's view of Mr Lamont's changes Publication 930317FT Processed by FT 930317 By PAUL CHEESERIGHT

EYEBALLS rolled a bit as Mr Lamont rehearsed everything which is right with the UK economy, but four Birmingham businessmen, gathered for a Budget tea party, heard him out in silence.

Guffaws came when the chancellor mentioned sewage and newspapers in the same breathe. They turned into verbal sneers as he extolled the economic benefits of the bloodstock industry.

If they took the Budget quietly it was because Mr Lamont failed to convince them he was doing enough to foster the recovery about which he talked so much. 'It's a Budget for his job,' said Mr Peter Thomas, chairman of Birmingham Deposit Centre, which guards the wealth of the wealthy.

'But then it was a Budget for not damaging the economy. It's what he's not done that matters. It's not going to damage anybody,' rejoined Mr Stuart Neal, chairman of Team Training Services.

'What has he done which will significantly affect anybody?' asked Mr Steve Williams, chairman of LBE Contract Tooling, an engineering company.

'He hasn't made me go out and decide to buy some new machine tools.'

Mr Robert Woolley, chairman of Frederick Woolley, a family engineering company agreed. 'It won't make a lot of difference all round to companies with up to 200 people in Birmingham.'

Certainly there was no feeling that suddenly there is a new dawn in the British economy. 'Lamont's just shuffling the pack,' said Mr Williams dismissively. 'Look at the private individual who's going to do the spending - he hasn't done very much at all,' observed Mr Thomas.

And local issues intruded. 'Bailing out Lloyd's, that's disgusting. What about Leyland Daf - why aren't we bailing them out?' asked Mr Williams, who is a firm proponent of propping up the manufacturing base.

'But it's a balance,' argued Mr Thomas. 'Lloyd's is an important factor in British business. It's taken a real battering.' On specific measures, though, Mr Lamont won a more favourable rating than the general criticism of his Budget might have suggested.

'The ACT measures are very good for companies,' contended Mr Woolley, and, if they look likely to benefit larger rather than smaller companies then, as Mr Williams said, 'All small businesses live off big businesses.'

Although Mr Thomas felt that the steps taken by Mr Lamont on housing were not that significant - 'he's done nothing really to help housebuilding' - he was prepared to agree with Mr Williams that 'Lamont's concentrated his changes in the right area,' that is, the bottom end of the market.

Changes in the taxing system for small business won qualified approval in terms of simplification, but the notion of having to pay tax on the corporate income of the current year, rather than preceding years, was not seen as a good idea. 'It discourages growth steps in the small sector,' suggested Mr Neal. 'It's an easy way of raising a few coppers for his coffers this year,' commented Mr Williams.

Mr Thomas said: 'There was one thing that pleased me - there is an indication about utilising the unemployed. It's long overdue. I like the idea of prospective employers getting a subsidy.'

Mr Williams worried that the system might be exploited by the wrong type of entrepreneur, taking on the long-term unemployed so he did not have to pay any wages. 'On face value, the numbers seem impressive,' rejoined Mr Neal. 'But if you spread it over the country, it becomes very small.'

Celebration of the Budget, in short, did not seem appropriate. 'We're not going to get roaring drunk on it,' said Mr Williams. If he changed his mind, he would have chosen whisky.

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy GOVT Draft regulations P9311 The Financial Times London Page 20 648
The Budget: North Sea tax change surprise Publication 930317FT Processed by FT 930317 By DEBORAH HARGREAVES

THE chancellor yesterday took the oil industry by storm with a large-scale overhaul of North Sea petroleum taxes.

The industry had no inkling that he would propose such sharp reductions in taxes accompanied by a virtual elimination of tax allowances.

The chancellor said he would reduce the petroleum revenue tax rate on existing oilfields from 75 per cent to 50 per cent and eliminate it for new fields.

He also said he would abolish PRT rules that allow expenditure on new exploration and development to be set against profits of existing fields.

Mr Harold Hughes, head of the UK Offshore Operators' Association, an industry group, said the changes would put a 'substantial burden on the industry at a time when it is stretched economically by low oil prices and high costs'.

The chancellor's changes will vastly simplify the tax regime in the North Sea, cutting 300 pages of bureaucratic legislation on PRT and updating the tax rules.

'It will be brilliant,' said Mr Tony Craven-Walker, managing director of Monument Oil and Gas. 'It will make the system so much more simple.'

Large companies such as British Petroleum could gain as much as Pounds 130m from the change, according to some analysts.

But the operators' association believes exploration costs in the North Sea could quadruple. This would hit the smallest companies hardest and cut drilling activity.

The chancellor said existing PRT rules had cost the exchequer Pounds 200m in 1991-92, rather than providing the revenue stream that was intended when PRT was introduced in 1975. He said the changes would bring Pounds 300m into the government's coffers in 1994-95 and Pounds 400m the following year.

The chancellor said PRT had become increasingly anachronistic since its introduction and represented a marginal tax rate of 83 per cent.

GB United Kingdom, EC P1311 Crude Petroleum and Natural Gas P9311 Finance, Taxation, and Monetary Policy GOVT Taxes COSTS Product costs GOVT Draft regulations P1311 P9311 The Financial Times London Page 20 342
The Budget: CBI attacks job relocations limit Publication 930317FT Processed by FT 930317 By ROBERT TAYLOR, Labour Correspondent

THE CHANCELLOR'S proposal to limit tax relief from job relocation packages offered by employers to their employees was unexpected and drew criticism from the Confederation of British Industry.

The CBI said the changes would 'add considerably to employers' costs and seriously affect an employees' willingness to relocate'.

Tax relief for removal expenses and additional housing costs has existed for more than 40 years in Britain.

The Inland Revenue said yesterday the yield from the changes would be nil in 1993-1994 but provide Pounds 200m to the Treasury in 1994-1995, with a Pounds 250m annual yield in the longer term.

Under the chancellor's changes tax relief for removal expenses and benefits will be limited to Pounds 8,000 per move with relief available whether or not employees sell their old property.

Tax relief for additional housing cost payments for moving into a more expensive housing area will be withdrawn.

The proposed changes will apply to employees who begin a new job or move with their existing employer on or after April 6 this year - transitional arrangements will be available for employees already committed to moving.

The Inland Revenue said the chancellor's aim was to put tax relief for removal expenses and benefits on to a statutory basis so that employers could be given 'clarity and certainty about the scope of the relief'.

Relief is available only where it would be unreasonable to expect the employee to work at the new location without moving nearer to it and provided the employee disposes of his or her old home.

The Inland Revenue has also up until now allowed tax exemption for certain payments made by employers to their employees for additional housing costs, such as increased mortgage interest. This relief is only available for a limited time and up to a maximum of Pounds 13,440. It will be withdrawn from April 6 this year.

The Inland Revenue estimates that at present around 175,000 employees may benefit from tax-free removal expenses.

About 30,000 might also be enjoying certain tax exemption from additional housing costs.

It calculates around 100,000 employees will be liable to extra tax as a result of the chancellor's changes, possibly increasing to 150,000 in the 1994-1995 financial year.

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy GOVT Taxes GOVT Draft regulations P9311 The Financial Times London Page 20 406
The Budget: Industry welcomes export measures Publication 930317FT Processed by FT 930317 By ANDREW BAXTER

INDUSTRY leaders welcomed the chancellor's measures to improve the UK's much-maligned export credit system, helping businesses win contracts abroad in fiercely competitive markets.

Over the past two years, recession-torn manufacturers and contractors have complained about having to compete against foreign rivals able to offer customers better terms - especially in fast-growing markets in developing countries - because their export credit is subsidised.

In his speech Mr Lamont said many British companies are 'sometimes at a disadvantage in seeking business overseas'. The government had negotiated hard over the years, he said, to secure a reduction in the subsidies offered by other countries.

He added that, with the increases in export cover announced yesterday and in the Autumn Statement, the annual cover for some of the fastest-growing and most important markets around the world will have increased by more than 75 per cent in just four years.

The two important moves announced yesterday were:

a further 7.5 per cent reduction in the level of ECGD premiums, following an average 20 per cent cut last year;

additional export credit cover of Pounds 1.3bn over the next three years, on top of the total Pounds 700m increase for this year and next, announced in the Autumn Statement.

The British Chambers of Commerce said the measures would be 'a major boost to exporters'.

Mr Neil Johnson, director general of the Engineering Employers Federation, said the export credit measures, along with the changes to advance corporation tax and business rates, would be seen by its members as 'ticks in the box'.

Commenting on the chancellor's assertion that the average level of premiums paid by British exporters next year would be down to 'around the average' paid by their G7 exporters, Mr Johnson said: 'If what he says is borne out in practice, that is a level playing field. It is good news.'

Other business organisations, including the Confederation of British Industry and the Machine Tool Technologies Association, also welcomed the export credit measures.

GB United Kingdom, EC P6111 Federal and Federally-Sponsored Credit Agencies P9311 Finance, Taxation, and Monetary Policy GOVT Draft regulations P6111 P9311 The Financial Times London Page 20 368
The Budget: Easing of ACT exceeds hopes Publication 930317FT Processed by FT 930317 By MAGGIE URRY

THE chancellor's proposals to ease the burden of unrelieved advance corporation tax on companies went further than industrialists had dared hope.

Mr Roger Wood, head of the 100 Group of Finance Directors working party on surplus ACT, said: 'I am delighted with what the chancellor appears to be offering. It makes the UK a more attractive location for international companies both UK- and foreign-owned.'

ACT is paid by companies on dividends and can be offset against UK corporation tax. However, many companies do not pay sufficient UK corporation tax to offset fully the ACT, meaning that they end up paying more tax.

Many had expected that something would be done to help foreign-owned multi-nationals which were being tempted to move their headquarters out of the UK because of the tax regime. Mr Lamont recognised this problem with the promised to establish a special tax regime for such companies from 1994-95.

But his second proposal, to class dividends paid out of overseas profits as a 'foreign income dividend' came as welcome news to those companies which earn substantial proportions of their profits from abroad. Many do not pay enough UK corporation tax to offset the whole of their ACT liability. The scheme is expected to reduce the annual build up of ACT by Pounds 250m.

Companies said they wanted to examine the consultative document which the government issued before commenting in detail.

However, BAT Industries, the tobacco and insurance group which made about 85 per cent of its 1992 profits overseas, said yesterday it welcomed the consultative process. Mr David Allvey, finance director, said 'at least he's picked up the baton and he's going to run with it'.

Mr Neville Bain, chief executive of Coats Viyella, Britain's biggest textiles company, which makes 70 per cent of its profits overseas, said: 'It is a positive recognition of the trap of double taxation.'

Companies said the foreign income dividends would not entitle non-tax paying shareholders, such as pension funds, to a tax credit.

They said such shareholders may demand higher dividends or may sell shares in companies with large overseas profits.

The move to cut the rate of ACT from 25 to 20 per cent was also welcomed, as it will give a cash flow benefit to companies estimated by the chancellor at Pounds 2bn over the next two years.

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy GOVT Draft regulations P9311 The Financial Times London Page 20 422
The Budget: Car industry has mixed reaction to impact Publication 930317FT Processed by FT 930317 By KEVIN DONE, Motor Industry Correspondent

THE MOTOR industry gave a cautious welcome to the Budget, but car retailers warned of the impact on new car sales of the chancellor's determination to increase the cost of motoring in real terms in every future Budget.

The Automobile Association said the government's motoring tax proposals were 'more highway robbery on Lamont's road to recovery'.

'With one hand the chancellor has taken more from the motorist in excise duty than he needs to replace new car tax; with the other, he has made all motorists subsidise new cars, and done little to benefit the environment or industry.'

The AA said Mr Lamont had delivered 'a blow below the bonnet'. The average motorist would pay an extra Pounds 60 a year which would hit the lower and middle income motorist hardest.

Mr William Ebbert, chairman of Vauxhall, said 'the increase in both fuel tax and vehicle excise duty further increases the cost of motoring, but, on balance, affects the cost of usage more than ownership, which is our preferred option.'

Sir Hal Miller, chief executive of the Society of Motor Manufacturers and Traders, said that the reform of company car taxation was 'extremely welcome'.

'We are delighted that the Treasury's earlier indicated preference for a complicated system of price banding as a way of establishing a charging scale has given way to our representations for a fixed percentage of price.'

The Retail Motor Industry Federation said the company car tax reforms were 'sensible' and would 'produce a fairer and more transparent tax system than previously.'

The motor industry 'could rise to the challenge of developing more fuel efficient vehicles,' said Sir Hal Miller, to compensate motorists in the short-term for the government's plan to raise fuel duties in future by 3 per cent a year in real terms.

There was a limit to what consumers should be asked to pay in the longer-term.

The Freight Transport Association claimed that industry's costs had risen by at least Pounds 230m a year with the 10 per cent increase in the duty on diesel.

'In real terms this increase in fuel duty will mean that the cost of operating a 38 tonne truck will go up by about Pounds 1,000 a year,' said the FTA.

'The unremitting increase in industry's costs from raising fuel duty annually will put us at the top of the EC road transport taxation league and must make it more difficult for us to compete against our European counterparts.'

GB United Kingdom, EC P3711 Motor Vehicles and Car Bodies P9311 Finance, Taxation, and Monetary Policy GOVT Taxes GOVT Draft regulations P3711 P9311 The Financial Times London Page 20 459
The Budget: Rises in fuel and excise duties hit motorists hard Publication 930317FT Processed by FT 930317 By KEVIN DONE, Motor Industry Correspondent

MOTORISTS were hit yesterday by increases in both fuel duty and vehicle excise duty, while the taxation of the private use of company cars will also rise significantly in the next financial year.

The company car taxation system will be drastically reformed with effect from 1994-95 with the move to a system based on car list prices rather than on engine size.

Some 700,000 drivers will face increases in their company car tax benefit bills under the new system, in a few cases of up to 60 per cent, but the majority of the 2m drivers who pay tax on company cars will benefit from the reform, which will favour cheaper, smaller cars.

The government warned yesterday that the cost of motoring is set to rise in real terms every year. It announced the intention to raise road fuel duties on average by at least 3 per cent a year in real terms in all future Budgets.

Mr Lamont said that this should provide an incentive for motorists to buy smaller more fuel-efficient vehicles.

With immediate effect the price of a gallon of unleaded petrol was raised by 12p to around Pounds 2.29. The price of a gallon of 4-star petrol was up 15p to around Pounds 2.52.

Duties on all road fuels, including diesel, were raised by 10 per cent. At the same time the vehicle excise duty on cars was raised by Pounds 15 to Pounds 125, an increase of 13.6 per cent.

These increases mean that the average cost of motoring, for a driver covering around 10,000 miles a year, will rise by around Pounds 50 a year.

The chancellor said that the latest duty increases - combined with the abolition last year of special car tax - would continue the shift of taxation from car purchase towards taxation of car use.

The government was determined to raise fuel duties every year in real terms in order to encourage fuel economy and to reduce the impact of the car on the environment. The transport sector accounted for the largest contribution to the growth in carbon dioxide emissions, said Mr Lamont.

The size of future increases in fuel duty would also take account of other factors, such as the possible introduction of charges for motorways and urban roads and the overall level of taxes and charges paid by road users.

Company car users face a further 8 per cent increase this year in tax scale charges, which the chancellor claimed would finally raise company car taxation 'to a level which fully reflects the true value of the benefit of a company car.' The average driver of a company Ford Sierra or Vauxhall Cavalier would pay Pounds 1.06 a week more in tax.

More importantly for the long-term the whole system for taxing the private use of a company car will be reformed with effect from 1994/95 with the move to a system that determines taxable benefits by the price of a car rather than the size of its engine.

The annual car benefit will be valued at a fixed percentage of the manufacturer's list price. Company car users will then pay income tax at their marginal rate on that amount.

The benefit level will be set at 35 per cent of the list price with the aim of making the reform neutral in terms of total company car tax revenues.

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy P3711 Motor Vehicles and Car Bodies P2911 Petroleum Refining COSTS Product prices GOVT Taxes GOVT Draft regulations P9311 P3711 P2911 The Financial Times London Page 20 620
The Budget: Sharp drop in petroleum tax rate Publication 930317FT Processed by FT 930317 By DEBORAH HARGREAVES

THE chancellor yesterday took the oil industry by storm with a large-scale overhaul of North Sea petroleum taxes.

The industry had no inkling beforehand that he would be proposing such sharp reductions in taxes accompanied by a virtual elimination of tax allowances.

The chancellor said he would reduce the Petroleum Revenue Tax rate on existing oilfields from 75 per cent to 50 per cent and eliminate it altogether for new fields.

He also said he would abolish PRT rules that allow expenditure on new exploration and development to be set against profits of existing fields.

Mr Harold Hughes, who heads the industry group the UK Offshore Operators' Association, said the tax changes would put a 'substantial burden on the industry at a time when it is stretched economically by low oil prices and high costs'.

The chancellor's changes will vastly simplify the tax regime in the North Sea, cutting 300 pages of bureaucratic legislation on PRT and updating the tax rules.

'It will be brilliant,' said Mr Tony Craven-Walker, managing director of Monument Oil and Gas. 'It will make the system so much more simple.' Monument will not stand to gain from the changes since it is not exposed to PRT.

Large companies such as British Petroleum could gain as much as Pounds 130m from the change according to some analysts. BP said last night that it expected the changes to work favourably for it.

But the operators' association believes exploration costs in the North Sea could quadruple. This would hit the smallest companies hardest and cut drilling activity.

The chancellor said existing PRT rules had cost the exchequer Pounds 200m in 1991-92 rather than providing the revenue stream that was intended when PRT was introduced in 1975. He said the changes would bring Pounds 300m into the government's coffers in 1994-95 and Pounds 400m the following year.

However, Mr Hughes disputed the figures and said they would be much higher.

The chancellor said PRT had become increasingly anachronistic since its introduction and represented a marginal tax rate of 83 per cent.

He said this gave no incentive to companies to keep their costs under control or make the most of their investments.

Oil companies have dreamed up many ways of offsetting PRT over the years and some production assets and even companies have been bought and sold on the basis of the tax shelter they offer.

GB United Kingdom, EC P1311 Crude Petroleum and Natural Gas P9311 Finance, Taxation, and Monetary Policy GOVT Taxes COSTS Product costs GOVT Draft regulations P1311 P9311 The Financial Times London Page 20 445
The Budget: TUC boss scorns jobless schemes Publication 930317FT Processed by FT 930317 By LISA WOOD, Labour Staff

MR Norman Willis, TUC general-secretary, yesterday said the new package of measures for the jobless was 'derisory'. But Mrs Gillian Shephard, the Employment Secretary, said the schemes focused on individuals, the long-term unemployed and on new ideas.

The package, with a gross cost of Pounds 225m and a net cost of Pounds 125m, contains five main elements.

The measures include:

Tec challenge. Training and Enterprise Councils will be invited to bid for Pounds 25m to develop and run innovative new ways to tackle unemployment. The new fund will be welcomed by Tecs, which are starved of cash, to pilot radical new ideas.

Workstart pilots. Employers will be given a financial incentive of about Pounds 60 a week - part of the benefit of the long-term unemployed person they take on.

Four pilots will be run to test the market, two by Tecs and two by the Employment Service. The pilots will concentrate on those unemployed for two and four years respectively.

Community Action. This scheme, a re-run of the Voluntary Projects Programme set up in 1982, will offer 60,000 places a year to those unemployed for 12 months and more. The scheme will be run by the Employment Service and will provide part-time work on large-scale projects run by voluntary organisations.

The Employment Service will help with job-hunting during the rest of the week. The scheme will offer benefit plus Pounds 10 a week and thus could suffer the same unpopularity as Employment Action, a similar-size scheme, which was run by Tecs and which is to be amalgamated this April with Employment Training.

Learning for work. Some Pounds 67m will provide up to 30,000 places for people unemployed for 12 months plus allow them to pursue full-time vocationally related courses. No alteration has been made to the so-called 21-hour rule which limits part-time study for the jobless.

Business start-up. This scheme, run by Tecs, offers financial incentives to unemployed people wanting to set up their own businesses. An extra Pounds 21m will be provided for 10,000 people.

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy P9441 Administration of Social and Manpower Programs P8331 Job Training and Related Services GOVT Draft regulations P9311 P9441 P8331 The Financial Times London Page 20 389
The Budget: How others saw the speech Publication 930317FT Processed by FT 930317

'It won't harm the recovery, that's the important thing. Iwanted him to do as little as possible, and that's what he did. Not a single adjustment was out of harmony. It will give a lot of confidence to business, especially that the government is starting to tackle the fiscal gap. But he has left me to go on running my business, and that's what I wanted to be able to do.'

Stanley Kalms, chairman of Dixons, The UK's biggest electrical retailer

'Our customers in retailing are no worse off and no better off. As retailers we were particularly pleased with the freezing of the unified business rate for another year. But the biggest problem is still the housing market. I think raising the threshold for stamp duty will have a positive effect on that, but we have got a long way to go. There were not many surprises in it, but I don't think it was lacklustre.

Geoffrey Maitland Smith, chairman, Sears group (including Selfridges, Wallis, Warehouse, Adams, Hornes, Olympus and Dolcis stores)

'This Budget means tax increases this year., tax increases next year and tax increases the year after, a massive betrayal the election pronises.'

Gordon Brown, shadow chancellor

'His proposals for 1993-94 are sensible. But his fiscal stance for 1994/95 makes a rather firm assumption that economic recovery will be under way before it has actually happened.'

Nigel Whittaker, executive director of Kingfisher and chairman of CBI retail trade committee

'This cautious and cold-hearted Budget offers little joy for the jobless and little hope for the homeless.'

Rodney Bickerstaffe, general secretary of Nupe

'The statement is based on the assumption that economic recovery is well under way and can be sustained. But in construction the recovery is still very limited and fragile. It is important, therefore, that the Budget paves the way for a further cut in interest rates as soon as possible.'

Sir Brian Hill, president of Building Employers Confederation

'This Budget does nothing to bring about the massive switch from consumption to investment which is essential for lasting recovery.'

Neil Johnson, director-general of the Engineering Employers Federation.

'This is close to the budget the CBI asked for ..but we would have liked an assurance on the continuation of improved investment allowances, and the Budget comes with a sting in the tail: future tax increases.'

Howard Davies, director-general of the Confederation of British Industry

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy GOVT Draft regulations P9311 The Financial Times London Page 20 429
The Budget: Self-employed free to assess their own tax Publication 930317FT Processed by FT 930317 By CHARLES BATCHELOR

THE most far-reaching reform of the personal tax system for nearly 50 years was announced by the chancellor yesterday. It is intended to simplify the chore of filling in tax forms and will mean that about 8m taxpayers will be able to assess their own liability to tax.

If the proposals work out as intended taxpayers will normally have to deal with the Inland Revenue once or twice a year when they send in their returns and payments. This should do away with the present system of estimated assessments, appeals, postponements, appeal hearings and revised assessments, the Revenue said.

Legislation will be introduced next year but the changes are not due to take effect until the 1996-97 tax year. The first completed self-assessment returns will be due at the beginning of 1998, a year later than suggested in a consultative paper last November.

Organisations representing small businesses and the self-employed welcomed the change as further proof of the government's serious intent to reduce the burden of red tape. But Mr Richard Brown, policy director at the British Chambers of Commerce, said he remained unconvinced that there would be a real simplification of procedures.

The new system, which is intended to provide taxpayers with just one tax statement and one tax bill for all their income, will affect 4m people who are self-employed or living off investments and a further 4m employees and pensioners who receive tax returns.

For the self-employed there are special rules, under the present system, for assessing the profits of the first three and last three years of the business. The chancellor's proposals are designed to sweep away these complications, the Inland Revenue said.

Under the new system most tax returns will be accepted without further inquiries but the Revenue will have the right to check any return. If taxpayers fail to send in payments, returns or their accounts on time they will face extra charges.

The Revenue believes the new system will lead to substantial savings in time and effort for both taxpayers and itself. But anyone who cannot work out his or her tax bill, or does not wish to do so, can call upon the Revenue to do it for them.

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy GOVT Taxes P9311 The Financial Times London Page 19 403
The Budget: Mortgage interest tax relief is cut Publication 930317FT Processed by FT 930317 By JOHN GAPPER and ANDREW TAYLOR

MORTGAGE LENDERS and housebuilders greeted the chancellor's measures to limit mortgage interest tax relief next year, while doubling stamp duty threshold immediately, with cautious approval and relief that changes were not more severe.

Building societies had feared a more decisive move against mortgage interest tax relief, but said they believed the delay in the move to next year would limit any potential to depress transactions in a fragile housing market.

The doubling of the stamp duty threshold to Pounds 60,000 follows a temporary abolition of stamp duty at the end of 1991, which was judged a failure because it led only to a temporary surge in transactions followed by a steep fall.

Halifax Building Society, the largest mortgage lender, said the limitation of tax relief was 'not unexpected'. The delay would allow time to re-adjust to the Pounds 10 increase in most borrowers' monthly payments.

Mr Tim Melville-Ross, chief executive of Nationwide Building Society, said a phased withdrawal of mortgage tax relief would lead to 'a more equitable and rational balance of UK housing subsidies and encourage greater mobility'.

He said the society believed the proposals would 'give short-term encouragement to the housing market and continue the gradual approach to structural reform'.

Mr Roger Boyes, executive director of Leeds Permanent Building Society, said permanent adjustment of stamp duty had been wanted by the industry for a long time.

Mr Joe Dwyer, chief executive of Wimpey, said the measures were 'about the best we could have hoped for. The changes in tax relief system will only have a small impact, and will be more than offset by raising of the threshold.'

Wimpey, the UK's second largest housebuilder, which yesterday announced a Pounds 112.4m pre-tax loss for 1992, said its house sales had risen by a third in the first 10 weeks compared with the corresponding period last year.

Tarmac, Britain's biggest housebuilder, said that there did not appear to be anything in the Budget 'to stand in the way of the first flickers of recovery in the market place'.

The Royal Institution of Chartered Surveyors, which represents 8,000 estate agents, said the raising of the stamp duty threshold would 'boost the housing market, particularly among first-time buyers - who hold the key to revival'.

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy P65 Real Estate GOVT Taxes P9311 P65 The Financial Times London Page 19 415
The Budget: Fuel and excise duty dismay for car owners Publication 930317FT Processed by FT 930317 By KEVIN DONE, Motor Industry Correspondent

MOTORISTS were hit yesterday by increases in both fuel duty and vehicle excise duty.

The taxation of the private use of company cars will also rise significantly in the next financial year.

The company car taxation system will be drastically reformed from 1994/95 through a system based on car list prices rather than on engine size. This will mean increases in tax bills for a large minority of drivers but smaller bills for more than half. Thereafter, individuals' own choice of cars will determine the size of their tax liability.

The government warned yesterday that the cost of motoring is set to rise in real terms every year. It intends to raise road fuel duties by at least 3 per cent a year in real terms in all future Budgets as an incentive for motorists to buy more fuel-efficient vehicles.

The price of a gallon of unleaded petrol rose yesterday by 12p to around Pounds 2.29, while that of a gallon of 4-star rose by 15p to around Pounds 2.52.

Duties on all road fuels, including diesel, rose by 10 per cent and the vehicle excise duty on cars was raised by Pounds 15 to Pounds 125.

These raise by Pounds 50 the average cost of motoring for a driver covering 10,000 miles a year.

Company car users face a further 8 per cent increase this year in tax scale charges, which the chancellor claimed would raise company car taxation 'to a level which fully reflects the true value of the benefit of a company car.'

In spite of the increases, the motor industry gave a cautious welcome to the Budget, but car retailers warned of the impact on new car sales of the chancellor's determination to increase the cost of motoring in real terms in every future Budget.

The Automobile Association said the government's motoring tax proposals were 'more highway robbery'.

'With one hand the chancellor has taken more from the motorist in excise duty than he needs to replace new car tax; with the other, he has made all motorists subsidise new cars, and done little to benefit the environment or industry.'

Mr William Ebbert, chairman of Vauxhall, said: 'The increase in both fuel tax and vehicle excise duty further increases the cost of motoring, but, on balance, affects the cost of usage more than ownership, which is our preferred option.'

Sir Hal Miller, chief executive of the Society of Motor Manufacturers and Traders, said that the reform of company car taxation was 'extremely welcome'.

The Retail Motor Industry Federation said the company car tax reforms were 'sensible' and would 'produce a fairer and more transparent tax system than previously'.

The Freight Transport Association claimed that industry's costs had risen by at least Pounds 230m a year with the 10 per cent increase in the duty on diesel. 'In real terms this increase in fuel duty will mean that the cost of operating a 38 tonne truck will go up by about Pounds 1,000 a year,' it said.

------------------------------------------------------------------------ HOW MOTORISTS HAVE BEEN HIT ------------------------------------------------------------------------ GALLON OF UNLEADED PETROL Yesterday Today Extra ------------------------------------------------------------------------ 216.4p 228.9p 12.5p inc duty of 107.5p inc duty of 117.0p Extra 9.5p ------------------------------------------------------------------------ ANNUAL PETROL COST AVERAGE MOTORING 10,000 MILES ------------------------------------------------------------------------ Ford Fiesta LX 1.3 43.4mpg Pounds 498.40 Pounds 527.40 Pounds 29 Vauxhall Astra LS 1.4 39mpg Pounds 552.04 Pounds 583.93 Pounds 31.89 Peugeot 405 GL 1.6 35.6mpg Pounds 607.87 Pounds 642.98 Pounds 35.11 Rover 820 Si 2.0 33.8mpg Pounds 640.24 Pounds 677.22 Pounds 36.9 ------------------------------------------------------------------------ VEHICLE EXCISE DUTY (annual) Pounds 110 Pounds 125 Pounds 15 ------------------------------------------------------------------------

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy P3711 Motor Vehicles and Car Bodies P2911 Petroleum Refining COSTS Product prices GOVT Taxes GOVT Draft regulations P9311 P3711 P2911 The Financial Times London Page 19 650
The Budget: Doubts remain about promised rail bonanza Publication 930317FT Processed by FT 930317 By RICHARD TOMKINS and ANDREW TAYLOR

YESTERDAY'S BUDGET gave the go-ahead to plans for the long-awaited Pounds 300m Heathrow Express but triggered deep concern about the outlook for other transport projects.

The chancellor said that the government would be prepared to contribute towards a privately-funded channel tunnel rail link but gave no indication of where the private sector funding was to come from.

He also raised the spectre of long delays for central London's badly-needed Pounds 1.8bn Crossrail scheme by announcing that it would be re-appraised as a candidate for private-sector financing.

Mr Norman Lamont held up all three projects as examples of ways in which his Autumn Statement initiative, aimed at attracting private-sector funding into transport infrastructure projects, had moved forward.

Approval for the Heathrow Express, a joint venture between state-owned British Rail and BAA, the private-sector airport operator, means passengers will be able to travel from London Paddington station to Heathrow airport in 16 minutes when the line opens in 1997.

Specially designed electric trains will travel along existing British Rail tracks for three-quarters of the journey before turning off along a newly-built spur.

The project will cost Pounds 300m, of which Pounds 51m will be equity. BR will contribute Pounds 15m, giving it a 30 per cent stake in the venture, and BAA will contribute Pounds 36m, giving it 70 per cent. The balance will be raised in commercial debt.

Mr Lamont's announcement on the channel tunnel rail link, although presented in positive terms, marked a climb-down from the government's previously-stated intention of getting the line built entirely by the private sector.

He conceded that it would now be necessary for the government to make a financial contribution to the Pounds 2.5bn project to reflect the fact that the line would be used by long-distance commuter trains.

He said Mr John MacGregor, the transport secretary, would invite the private sector to submit bids in the hope that the project would proceed to completion 'around the end of the decade', indicating that there were still no firm funding plans for the project.

He also delivered a slap in the face to Sir Bob Reid, British Rail's chairman, by saying the link would run into London's St Pancras station, not the Pounds 1.4bn terminal BR had hoped to build at King's Cross.

Mr Lamont's plans for Crossrail, a main line railway link between London's Paddington and Liverpool Street, will cause deep concern in the capital because the project had previously figured strongly in the government's spending programme as a public-sector project.

The scheme is by far the biggest public transport project in the pipeline for central London, but re-assessing it now as a scheme for possible private-sector participation will be seen as a way of deferring it into the indefinite future.

Construction companies and investment bankers yesterday expressed disappointment that no fresh projects had been announced by the chancellor.

Mr Joe Dwyer, chief executive of Wimpey, the construction group, said: 'It was well known that the three rail schemes were on the government's wish-list for private finance.

Picture, Page 21

British Rail BAA GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy P9621 Regulation, Administration of Transportation GOVT Government News RES Facilities P9311 P9621 The Financial Times London Page 19 556
The Budget: Tax burden increases - The Main Points Publication 930317FT Processed by FT 930317

The net result of the changes increase total tax revenues by a modest 0.1 per cent of GDP in 1993-94 to 36 1/2 per cent of GDP. But the delayed effects of the government's tax changes mean that the Budget measures eventually add 1.7 per cent of GDP in tax rises by 1997-98 by which time government revenues will have risen to 39 1/4 per cent of GDP.

PSBR here to stay ..: The PSBR this fiscal year will be Pounds 35.1bn, Pounds 1.9bn lower than the Autumn Statement forecast. But general government expenditures of 44 3/4 per cent of GDP in 1993-94 mean a PSBR of Pounds 50.1bn, 8 per cent of GDP, and Pounds 55.6bn excluding privatisation receipts.

.but maybe not for ever: The government's objective remains 'to bring the PSBR back towards balance over the medium term'. But the government's projections still expect a PSBR of 3 3/4 per cent of GDP in 1997-98 by which time net public debt will have almost doubled since 1990 to 50 per cent of GDP.

Full-funding rule modified: No news on interest rates, but the government relaxed its funding policy. Sales of gilts to bank and building societies will now be counted as a non-inflationary funding source. The government has increased its upper limit for broad money growth next year in part to accommodate the boost to M4 that relaxing its full-fund rule which should allow. The target range for M0 in 1993-94 is widened from 4-8 per cent to 3-9 per cent.

'Budget for sustained growth': The chancellor said that the British economy 'enters the year in a more favourable position than most of our main competitors' having 'won' the battle against inflation over the last two years. Highlights of the recovery include:

Growth accelerates: Economic recovery is expected to start slowly but accelerate next year. GDP grows by 1 1/4 per cent in 1993 but by 3 per cent in the first half of 1994.

Inflation sticky Underlying retail price inflation remains stuck at 3 3/4 per cent until the middle of next year, near the top of the government's 0-4 per cent target range.

Trade deficit grows Rising imports means the current account deficit is expected to rise to Pounds 17 1/2 bn this year and Pounds 18 1/2 bn in the first half of next year, 2 3/4 per cent of GDP, in spite of projected export growth of 10 1/2 per cent next year.

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy GOVT Government News P9311 The Financial Times London Page 19 443
The Budget: Re-balancing the books - The Main Points Publication 930317FT Processed by FT 930317

The chancellor announced a package of immediate and future tax increases in an attempt to avoid 'excessive government borrowing over the medium-term' from preventing 'a sustained economic recovery'. His tax package is broadly neutral this year but will boost government revenues by Pounds 6.7bn in 1994-95 and Pounds 10.3bn in 1995-96.

Income tax: No change in the basic rate and no increase in the top rate of tax but the 20 per cent tax band will be widened by Pounds 500 to the first Pounds 2,500 of taxable income from April 1 this year. It will widen to the first Pounds 3,000 in 1994. Personal allowances, the married couples' allowance and the inheritance tax threshold of Pounds 150,000 were frozen this year.

National insurance to rise: The main rate for employees and the self-employed will rise by 1 per cent next year, but there will be no change in employers' contributions.

VAT extended: Extension of the VAT base limited to domestic fuel and power. From April 1994 it will be levied at 8 per cent, rising to 17.5 per cent in April 1995.

Driving penalised: Road fuels will rise by 10 per cent this year to pay for the abolition of car tax last autumn. This adds 2.7p to a litre of unleaded and 3.3p to a litre of leaded petrol. Vehicle excise duty on cars, vans and taxis will rise by Pounds 15 to Pounds 125. Scale charges on company cars will rise by 8 per cent and car fuel scale charges by 20 per cent. The discount on high business mileage will be abolished and from next year, company cars will be taxed according to their list price rather than engine size.

Excise duties rise: The chancellor left the duty on spirits unchanged; other alcohol duties rose by 5 per cent. This added 1 1/2 p to a pint of beer and 5 1/2 p to a bottle of wine. A 6.5 per cent increase in tobacco duty added 10p to a packet of 20 cigarettes and 4 1/2 p to five small cigars.

Housing: The stamp duty threshold for houses, land and property was doubled to Pounds 60,000. But tax relief on mortgage interest will be limited to 20 per cent from April next year.

Small businesses: The Budget introduced wide ranging measures to help small businesses. Business rates will not increase in real terms this year and the threshold above which traders are required to register for VAT will rise from Pounds 36,600 to Pounds 37,600. There will be relief on capital gains tax where entrepreneurs reinvest the gains from the sale of shares in their own business in new unquoted trading companies. Premiums on the loan guarantee scheme will be reduced and traders will also be able to claim VAT relief on bad debts after six months. VAT penalties on late returns and misdeclarations eased.

Industry: The rate of advanced corporation tax will be reduced to 22.5 per cent for this financial year and to 20 per cent from April 1994. The chancellor also announced improvements to export credits.

Long-term unemployed: A new vocational education programme will finance 30,000 unemployed people to take full-time courses. Expansion of business start-up scheme will provide extra 10,000 places for people wishing to start their own businesses.

Infrastructure: The channel tunnel rail link will proceed as a joint venture between the government and the private sector and the Heathrow express will go ahead as a joint venture between British Rail and BAA.

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy GOVT Government News P9311 The Financial Times London Page 19 617
The Budget: Do-it-yourself tax assessment in prospect Publication 930317FT Processed by FT 930317 By CHARLES BATCHELOR

THE most far-reaching reform of the personal tax system for nearly 50 years was announced by the chancellor yesterday. It is intended to simplify the chore of filling in tax forms and will mean that about 8m taxpayers will be able to assess their own liability to tax, if they wish.

If the proposals work out as intended taxpayers will normally have to deal with the Inland Revenue once or twice a year when they send in their returns and payments. This should do away with the present system of estimated assessments, appeals, postponements, appeal hearings and revised assessments, the Revenue said.

Legislation will be introduced next year but the changes are not due to take effect until the 1996-97 tax year. The first completed self-assessment returns will be due at the beginning of 1998, a year later than suggested in a consultative paper last November.

Organisations representing small businesses and the self-employed welcomed the change as further proof of the government's serious intent to reduce the burden of red tape. But Mr Richard Brown, policy director at the British Chambers of Commerce, said he remained unconvinced that there would be a real simplification of procedures.

The new system, which is intended to provide taxpayers with just one tax statement and one tax bill for all their income, will affect 4m people who are self-employed or living off investments and a further 4m employees and pensioners who receive tax returns.

An important effect of the changeover will be for income being taxed in the year in which it is earned. At present people with more than one source of income can be taxed on a combination of previous years and the current year with several different payment dates.

For the self-employed there are special rules, under the present system, for assessing the profits of the first three and last three years of the business. The chancellor's proposals are designed to sweep away these complications, the Inland Revenue said.

Under the new system most tax returns will be accepted without further inquiries but the Revenue will have the right to check any return. If taxpayers fail to send in payments, returns or their accounts on time they will face extra charges.

The Revenue believes the new system will lead to substantial savings in time and effort for both taxpayers and itself. But anyone who cannot work out his or her tax bill, or does not wish to do so, can call upon the Revenue to do it for them.

Further consultations are planned to make sure that the detailed arrangements of the new system work in practice.

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy GOVT Taxes P9311 The Financial Times London Page 19 470
The Budget: City lukewarm over gilts funding changes Publication 930317FT Processed by FT 930317 By RICHARD WATERS and JOHN GAPPER

MR NORMAN LAMONT yesterday announced a widely expected move to allow purchases of government bonds by banks and building societies to count towards the public sector borrowing requirement. However, the City warned that further significant changes would be needed to the way the PSBR is funded to relieve pressures in the gilts market.

The extent of the government's borrowing needs in the coming financial year became clear as the chancellor announced an expected PSBR of Pounds 50bn. This topped most expectations in the City by at least Pounds 5bn and led to a fall in gilts prices by one percentage point. However, investors and analysts said that more important influences were likely to be borrowing needs in future years and the inflation outlook.

The move away from the so-called 'full-funding' rule to one of 'underfunding' had been urged on the chancellor by the City. This allows gilt sales to banks and building societies to count towards the PSBR target.

By reducing the amount of gilts that need to be sold to other investors, the intention is to ease pressure on the gilts market and prevent long-term interest rates from rising.

Banks and building societies have bought Pounds 5.5bn of gilts in the first 11 months of the current financial year, up from less than Pounds 1bn in the whole of 1991-92. However, most said yesterday that they would be unlikely to increase these holdings unless the Bank of England designed some of its gilt sales to suit the particular needs of credit institutions.

Referring to yesterday's change, Mr Roger Little, director in charge of dealing at Abbey National, said: 'It doesn't give us any more incentive to buy gilts than before.'

A change in policy to issuing more shorter-dated gilts, with maturities of less than five years, would encourage more buying, a number of banks and societies said. This is because banks prefer to hold short-dated bonds for liquidity purposes, and because longer-dated gilts are more vulnerable to changes in inflation and other factors.

Mr Peter Wood, finance director of Barclays Bank, said he anticipated discussions among banks and the Bank of England to ensure the issue of more short-term gilts such as one-year notes which the banks would find attractive.

'I cannot believe the Bank wants to force banks to buy the sort of long-term gilts which they believe are unacceptably risky,' said Mr Wood. He said short-term gilts would be appropriate as a response to a 'short-term problem'.

Also, banks said that the difference between money-market interest rates and short-dated gilt yields would have to widen to make it more attractive for them to buy gilts.

At the moment, money market rates are just below 6 per cent, while five-year gilts yield only around half a percentage point more. This difference would need to rise by at least a percentage point to encourage banks to buy more gilts, said Mr Philip Guy, treasurer of Hill Samuel.

Mr Richard Goeltz, chief financial officer of National Westminster Bank, said British banks would require a more attractive yield on two or three year bills if they were to increase their portfolios substantially. He said the Budget had contained 'nothing that would lead us to start building a portfolio of gilts tomorrow.'

A wider differential in the US bond market between money-market interest rates and short-term bond yields encouraged US banks to take their holdings of government bonds up to nearly Dollars 700bn at the end of 1992, from about Dollars 450bn two years before. This has helped both to fund the government borrowing requirement and guarantee the banks a healthy profit to rebuild capital resources.

The City reacted with disappointment - though little surprise - to Mr Lamont's announcement that stamp duty on share transactions would stay for at least another year, raising an estimated Pounds 1bn. The tax had been scheduled for abolition with the introduction of Taurus, the Stock Exchange's planned paperless settlement system which was scrapped last week.

GB United Kingdom, EC P6231 Security and Commodity Exchanges P9311 Finance, Taxation, and Monetary Policy P6211 Security Brokers and Dealers GOVT Taxes GOVT Government News P6231 P9311 P6211 The Financial Times London Page 19 713
Yeltsin in call for aid to stave off 'threat' to reforms Publication 930317FT Processed by FT 930317 By JOHN LLOYD MOSCOW

MR BORIS YELTSIN, the Rus-sian president, yesterday called for immediate and substantial western aid to stave off what he called 'the serious danger of reaction' in Russia.

Mr Yeltsin, speaking at a joint news conference with French president Francois Mitterrand, said: 'There is a very, very serious threat hanging over democracy and reforms.'

He said last week's session of the Congress of People's Deputies, the country's top legislature, showed that communist forces were intent on avenging their defeat in the 1991 coup attempt.

Mr Mitterrand suggested Group of Seven leaders meet as soon as possible after Mr Yeltsin's summit with President Bill Clinton in Vancouver on April 4 to discuss Russia's problems. Mr Yeltsin added: 'We cannot wait for Tokyo in June or July. It may prove too late.'

When asked if the west would continue its support for Mr Yeltsin if he introduced authoritarian measures, Mr Mitterrand said: 'If we must choose between camps in the country, then we will choose the camp which continues democratic and economic reform.' Mr Yeltsin had 'proposals to make to the Russian people and I am certain he will do so in a democratic way', he said.

Mr Yeltsin has said he will hold a plebiscite next month. In doing so, he will directly challenge parliament, which has ruled such a move unconstitutional and has voted itself the powers to strip him of office.

The French president said there were differing views among G7 countries on aid. France and Germany believed in the need for urgent action; Japan, by contrast, had so far refused to take part in a high-level G7 meeting before the heads of state conference in Tokyo in July.

Mr Yeltsin also said there could be several changes in the cabinet of ministers. In the meantime, he has signed a decree expanding his cabinet to include central bank chief Viktor Gerashchenko, who has been accused of undermining economic reform with easy credits. But it was not clear whether this would strengthen Mr Yeltsin's grip on the central bank.

The European Bank for Reconstruction and Development announced it had signed a Dollars 43.8m technical co-operation loan to aid privatisation in Russia.

Moscow power struggle, Page 2

Editorial Comment, Page 17

RU Russia, East Europe P9111 Executive Offices P9121 Legislative Bodies P9311 Finance, Taxation, and Monetary Policy GOVT Government News P9111 P9121 P9311 The Financial Times London Page 18 417
Private sector may be paid to take over Docklands railway Publication 930317FT Processed by FT 930317 By RICHARD TOMKINS, Transport Correspondent

THE government may privatise London's Docklands Light Railway by paying the private sector to take it over. Government advisers are studying the move as one of the most likely options for getting the loss-making railway into private ownership.

Built in the 1980s for Pounds 77m, the Docklands Light Railway is being extended and upgraded at a cost of Pounds 800m to increase capacity and improve reliability.

Earlier this month, the Department of the Environment appointed the consultancy arm of Ernst & Young, the accountancy firm, to draw up a list of options for privatising the line within the lifetime of this parliament.

The government is keen to press ahead with the plan because it wants the private sector to build a Pounds 130m extension of the Docklands Light Railway across the Thames to Lewisham in south-east London.

A straightforward sale or stock-market flotation of the railway is ruled out by the losses it makes, currently more than five times its Pounds 3m annual revenues. But Ernst & Young believes the private sector could be offered a 'dowry' to take the railway off the government's hands.

This could stir up a controversy similar to the one that accompanied the government's recent disposal of the Property Services Agency's projects division to Tarmac, the construction group, with payments or guarantees worth about Pounds 100m.

Another option would be to franchise the operation of the railway to the company wanting the smallest subsidy to run it. But this could prove less attractive than an outright sale because the government would remain the owner.

The railway's performance, once notoriously unreliable, has improved sharply in the past few months under a new management team headed by Sir Peter Levene, former head of defence procurement at the Ministry of Defence. Last week, Sir Peter announced that the railway was to pay Brown & Root, the US engineering group, Pounds 30m over the next three years to get the railway running smoothly and cut its costs.

Mr Eric Anstey, Ernst & Young's director of privatisation and utilities services, said the railway could become profitable next decade if the property market recovered and the Lewisham extension was built.

Fast track to efficiency, Page 14

Docklands Light Railway GB United Kingdom, EC P4911 Electric Services P9621 Regulation, Administration of Transportation COMP Company News P4911 P9621 The Financial Times London Page 18 412
Yeltsin urges aid to ward off 'threat' to democracy Publication 930317FT Processed by FT 930317 By JOHN LLOYD MOSCOW

MR BORIS YELTSIN, the Rus-sian president, yesterday called for immediate and substantial western aid to stave off what he called 'the serious danger of reaction' in Russia.

Mr Yeltsin, speaking at a joint news conference with French president Francois Mitterrand, said: 'There is a very, very serious threat hanging over democracy and reforms.'

He said last week's session of the Congress of People's Deputies, the country's top legislature, showed that communist forces were intent on avenging their defeat in the 1991 coup.

'I believe the western world and western countries did not understand the reality of revanchism before the eighth Congress,' Mr Yeltsin said in calling urgently for aid. 'We cannot wait for Tokyo in June or July. It may prove too late.'

Mr Mitterrand suggested Group of Seven leaders meet as soon as possible after Mr Yeltsin's summit with President Bill Clinton in Vancouver on April 4 to discuss Russia's problems.

When asked if the west would continue its support for Mr Yeltsin if he introduced authoritarian measures, Mr Mitterrand said: 'If we must choose between camps in the country, then we will choose the camp which continues democratic and economic reform.' Mr Yeltsin had 'proposals to make to the Russian people and I am certain he will do so in a democratic way', he said.

Mr Yeltsin has said he will hold a plebiscite next month. In doing so, he will directly challenge parliament, which has ruled such a move unconstitutional and has voted itself the powers to strip him of office.

Mr Yeltsin said he would not make 'rash decisions' but would decide what to do soon. He and Mr Mitterrand said the crisis would have to be settled in the next few weeks.

The French president made clear there were sharply differing views among G7 countries on the question of aid. France and Germany were leading those who believed in the need for urgent action. Japan, by contrast, had so far refused to take part in a high-level G7 meeting before the scheduled heads of state conference in Tokyo in July.

Mr Mitterrand suggested that, if Japan continued to refuse to take part, the meeting should go ahead outside the formal boundaries of the G7 process. The European Bank for Reconstruction and Development announced it had signed a Dollars 43.8m technical co-operation loan to aid privatisation in Russia.

Moscow power struggle, Page 2 Editorial Comment, Page 17

RU Russia, East Europe P9111 Executive Offices P9121 Legislative Bodies P9311 Finance, Taxation, and Monetary Policy GOVT Government News P9111 P9121 P9311 The Financial Times London Page 18 447
Italy's corruption probe forces out third party leader Publication 930317FT Processed by FT 930317 By ROBERT GRAHAM ROME

THE LEADER of Italy's Liberal party resigned yesterday. He is the third party head in a month forced to step down after being implicated in the corruption scandals that have rocked the country.

Mr Renato Altissimo's move came after he was warned on Monday he was under investigation by Milan magistrates for allegedly receiving L50m (Pounds 22,500) in illicit funds from Enel, the national electricity authority.

Mr Altissimo, who denied any wrongdoing, was one of 10 parliamentarians this week advised they were under investigation over Enel payments.

The small Liberal party is a partner in the four-party government coalition led by prime minister Giuliano Amato, but Mr Altissimo's decision is not expected to affect its stability.

Nevertheless, it underlines again the extent to which the corruption scandal is eroding the credibility of the traditional parties and removing well-known figures from public life. Already Mr Bettino Craxi, the Socialist leader, and Mr Giorgio La Malfa of the Republicans have had to step down after being accused of accepting illegal payments.

Mr Amato again came under fierce attack in parliament yesterday. There were chaotic scenes in the Chamber of Deputies, where opposition MPs from the populist Lombard League at one stage dangled a hangman's noose at government benches.

Mr Amato was frequently interrupted by members from the neo-fascist MSI party and the Lombard League as he concluded the debate on how to confront the crisis caused by the wave of corruption being exposed by an increasingly assertive judiciary.

He urged parliament to adopt a bipartisan approach to dealing with corruption. But it was still unclear how the parties would agree on legislation to achieve a political solution to the corruption scandals.

In another development likely to undermine even further the old politico-economic system, Milan magistrates began late yesterday to leak excerpts of a confession by Mr Gabriele Cagliari, the head of Eni, the state energy and chemical company, arrested a week ago.

He is said to have confirmed that Eni made a series of illicit payments to political parties before he took over in 1990 and during his period as chairman. The magistrates have long regarded Eni as the heart of the system of illicit party funding.

The scale of parliamentary involvement in the scandal has also been underlined this week by the fresh action of Milan magistrates and also by magistrates in Naples and Reggio Calabria.

Ente Nazionale Idrocarburi Italy, EC P8651 Political Organizations P2911 Petroleum Refining PEOP Personnel News GOVT Legal issues P8651 P2911 The Financial Times London Page 18 438
The Lex Column: UK housing Publication 930317FT Processed by FT 930317

Wimpey's results confirmed that the housebuilding sector remains a kaleidoscope of blue language, red ink and green shoots. On balance, Mr Norman Lamont's Budget seems likely to encourage the incipient revival in the housing market even if it does not immediately help corporate profitability.

Many housebuilders have recently reported a strong rise in demand in response to lower interest rates. Wimpey was typical in announcing a 33 per cent increase in house sales since the start of the year. The slight caution that spread ahead of the Budget will probably now evaporate. For first-time buyers, at least, the increase in the threshold for stamp duty is likely to be a more significant incentive than the reduction in mortgage interest relief proves a deterrent. But a rise in the volume of housing transactions will not necessarily provide an instant stimulus to prices. Housebuilders have had to provide carrots to attract buyers. Negative equity will continue to depress the general market. The new threshold for stamp duty will make it hard for prices to rise above Pounds 60,000 for those houses aimed at first-time buyers. This may not prove too great a problem: last year about two-thirds of new houses were sold below that price.

Nevertheless, housebuilders will continue to face margin pressure. Price increases for a range of building materials will squeeze profits. Land prices now seem set to rise faster than house prices - favouring those companies which can boast long land banks.

GB United Kingdom, EC P1521 Single-Family Housing Construction P9311 Finance, Taxation, and Monetary Policy CMMT Comment & Analysis MKTS Sales GOVT Taxes P1521 P9311 The Financial Times London Page 18 283
The Lex Column: Drinks sector Publication 930317FT Processed by FT 930317

The chancellor's decision to exempt spirits from excise duty represents a considerable victory for the Scotch whisky lobby. At one level it marks a step towards redressing the discrimination against spirits in the tax regime for alcohol. At another it is a gesture towards harmonisation of UK duties with the much lower rates applying in Europe. The more lenient attitude of the British government will certainly give the industry some extra credibility in lobbying against possible duty increases elsewhere.

But there may not be much short-run effect on earnings. Though the fall in domestic spirits consumption is expected to slow this year, the market remains soft. Consumption trends are unlikely to be affected by the chancellor's decision to forgo an indexation of duties which would have added only 17p to a bottle of spirits.

For beer and wine, the story is more complicated. The decision to raise duties on these categories by twice the inflation rate will probably make little difference to overall consumption levels, but it will exacerbate the problems caused by personal imports from the continent. This affects the retail trade as much as the brewers. It is particularly unhelpful for brewers like Whitbread whose market is concentrated in the south-east, and which also owns the Threshers off-licence chain.

GB United Kingdom, EC P2085 Distilled and Blended Liquors P9311 Finance, Taxation, and Monetary Policy P2082 Malt Beverages P2084 Wines, Brandy and Brandy Spirits CMMT Comment & Analysis GOVT Taxes P2085 P9311 P2082 P2084 The Financial Times London Page 18 261
The Lex Column: UK equities Publication 930317FT Processed by FT 930317

The chancellor's proposed reform of the advanced corporation tax system looks like a can of worms for UK equities. By lowering the rate of ACT payable by companies on dividends, Mr Lamont will also reduce the credit recoverable by tax-exempt investment institutions from the Inland Revenue. That will reduce pension funds' income from UK equities by Pounds 1bn a year by 1995, when the ACT rate is lowered to 20 per cent.

Since pension funds own a large slice of the UK equity market, lower share prices may result. High yield stocks could be hardest hit because their investment returns will fall the most. Fund managers might equally place a higher value on the gross investment income offered by gilts. There is also the thorny question of valuing the pension funds themselves: actuaries valuing equity holdings on the basis of anticipated dividend income may have little option but to break out the red ink.

Companies which cannot offset ACT against their mainstream corporation tax should be the beneficiaries. BAT Industries, for example, which wrote off Pounds 96m surplus ACT last year, will have the option in future of paying its dividend out of a designated stream of overseas earnings. If a surplus arises, ACT can then be recovered from the Revenue. The snag is that such 'foreign income dividends' will be paid without a tax credit and are therefore worth 20 per cent less to a pension fund. The company could always increase its dividend by 20 per cent to compensate. But that can hardly be the outcome the chancellor intended.

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy CMMT Comment & Analysis GOVT Taxes P9311 The Financial Times London Page 18 294
The Lex Column: A tax on the markets Publication 930317FT Processed by FT 930317

Mr Lamont may have thought he was pleasing voters by refraining from any net tax increases, but his budget does little for financial markets. There has been no interest rate cut; at Pounds 50bn next year's PSBR is considerably larger than expected; and changes to the ACT regime - of which more below - cast a shadow over the equity market. Perhaps the chancellor decided that by making equities less attractive to institutions, he would encourage them to buy gilts. That remains to be seen. What is clear is that, on the basis of yesterday's figures, PSBR problems will dog the recovery for years to come. The deficit will still be Pounds 30bn in 1997-98.

The risk in raising additional revenue in 1993-94 was always that of hitting confidence in the early stages of recovery. But knowing that the pain is simply deferred will do little for consumer spending. Despite unpopular planned measures such as extending VAT to domestic fuel and increased national insurance rates, the PSBR trend may force the government into swingeing spending cuts in November.

The nagging worry is whether it would then have the courage to act. Yesterday's effort again betrays the anxieties of a government afraid to court unpopularity while it has a small majority. It will not do much for the gilts market. Mr Lamont conceded the relaxation of the funding rule, but offered no extra retail incentives nor the steeper yield curve which would encourage banks to buy. The authorities might hope to engineer that with another cut in base rates, but that could be hard to square with concern over the exchange rate, especially since, despite Mr Lamont's insouciance, a large current deficit cannot be financed indefinitely.

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy CMMT Comment & Analysis GOVT Government revenues P9311 The Financial Times London Page 18 322
London Stock Exchange: New Highs and Lows for 1992/93 Publication 930317FT Processed by FT 930317

NEW HIGHS (91).

BRITISH FUNDS (1) Treas. 2 1/2 pc IL '03, AMERICANS (1) Merrill Lynch, BANKS (2) Bk. Scot. 9 1/4 pc Pf., Do 9 3/4 pc Pf., BREWERS (3) Bulmer, Greene King, Wetherspoon, BLDG MATLS (2) Sheffield Instlns., Wolseley, BUSINESS SERVS (1) Johnson Cleaners, CONGLOMERATES (1) CSR, ELECTRONICS (5) Diploma, Electrocomps., Hoskyns, Kode, Trace Computers, ENG GEN (5) Carclo, Clayhithe, Fairey, SEP, Transfer Tech., FOOD MANUF (1) Cranswick, FOOD RETAILING (1) ASDA, HEALTH & HSEHOLD (2) Assoc. Nursing Servs., Paterson Zochonis, HOTELS & LEIS (2) First Leis., Whitegate, INSCE COMPOSITE (2) Domestic & Gen., Royal, INSCE LIFE (2) Britannic, Transatlantic, INV TRUSTS (16) Alliance Tst., City Merchants High Yld., Dartmoor 6 1/4 pc RPI Db. '05, EFM Japan, Do Wts., Exeter Prfd. Db. '02, First Ireland, Fleming Fledgeling, For. & Colonial PEP, Fulcrum Zero Pf., Merlin Intl. Green, Mid Wynd, Nth. Amer. Gas, Overseas Inv. Wts., River & Merc. Smaller Co, St. Andrews, MEDIA (5) Avesco, CIA, LWT 5.90625p Pf., News Intl., Watmoughs, MTL & MTL FORMING (1) Triplex Lloyd, MISC (4) Black (P), Lincat, Lincoln House, Norbain, MOTORS (4) BBA 6 3/4 pc Cv. Pf., Burndene, Lookers 8pc Cv. Pf., Quicks, OIL & GAS (1) Seafield Res., OTHER FINCL (4) Aitken Hume, Burlington, First Natl. Fin. 7pc Pf., M & G, OTHER INDLS (4) BTR Wts., Do Wts. '94-95, Do Wts. '95-96, Wilshaw, PACKG, PAPER & PRINTG (1) St Ives, PROP (13) Bilton, Bradford, Cap. & Regional, Frogmore Ests., Hambro Countrywide, Land Sec., Letinvest 11 1/4 pc 1st Mtg. Db. '12, Lon. Merchant, Do Defd., Prop. Security, Savills, Slough 6pc Cv. '03, Town Centre, TEXTS (3) Celestion, Dewhirst, Parkland, TRANSPORT (1) Brit. Airways 9 3/4 pc Cv., WATER (1) Mid Kent, MINES (2) Nth. Broken Hill Peko, Sons Gwalia.

NEW LOWS (8).

BLDG MATLS (1) Russell (A), BUSINESS SERVS (1) Reed Executive, ELECTRONICS (1) Standard Platform, ENG GEN (1) BM, HOTELS & LEIS (1) Tomorrows Leis., MISC (1) Stonehill, OIL & GAS (1) Teredo, MINES (1) Niugini.

GB United Kingdom, EC P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 60 363
London Stock Exchange: Owners succeeds Publication 930317FT Processed by FT 930317 By CHRISTOPHER PRICE, JOEL KIBAZO and STEVE THOMPSON

The announcement that Owners Abroad had successfully fended off the Pounds 290m bid from its rival tour operator Airtours triggered more hectic activity in the shares as investors took stock of the situation as the dust settled on one of the closest takeover battles in recent times.

The early afternoon announcement had been preceded by continued busy activity in Owners shares as BZW, on behalf of Airtours, was said again to have been bidding for stock. It was later announced that Airtours nominees now control 8.21 per cent of Owners ordinary shares.

However, dealers also said that Owners' white knight, travel agency Thomas Cook, owned by German travel group LTU, had also been active in the market. One of the first trades of the day yesterday had been struck at 152 1/2 p - the price Thomas Cook had paid to secure a large chunk of the 8.4 per cent stake it snapped up in Owners on Monday.

The morning's activity - when 4m shares were traded - underpinned the shares of both protaganists. However, the 3.45pm announcement of Owners' victory prompted a roller-coaster ride in both stocks. Owners immediately tumbled 20 to 118p, before rallying to close at 126p, a fall of 12 on the day. Turnover was moderate by recent sessions at 4.9m.

Airtours dropped 19 to 319p, then rallied to end the day 11 adrift at 327p. The company managed to secure 43 per cent of the shares either through nominees or by pledges of support. Sources close to Airtours were blaming a small number of institutions for switching allegiance at the last moment.

Analysts attached more significance to the fact that Owners and Thomas Cook had built up a strategic stake of more than 10 per cent on Monday. However, most remained positive on both stocks in spite of the result. A combined Airtours/Owners would have probably sparked a price war with market leader Thomson and this prospect has now diminished. Both companies have also reported strong bookings during the takeover battle. In addition, Owners and Thomas Cook are now expected to cement their pre-bid plans for closer ties.

Owners Abroad Group Airtours Thomas Cook and Sons GB United Kingdom, EC P4725 Tour Operators CMMT Comment & Analysis MKTS Market data P4725 The Financial Times London Page 60 401
London Stock Exchange: Tax shift boosts oil shares Publication 930317FT Processed by FT 930317 By CHRISTOPHER PRICE, JOEL KIBAZO and STEVE THOMPSON

OIL ISSUES, little changed ahead of the Budget, rose sharply after news that Petroleum Revenue Tax on existing oil fields is being reduced from 75 per cent to 50 per cent from July 1 and that tax on new fields will be abolished.

The market's knee-jerk reaction was that the oil majors, British Petroleum and Shell Transport, would be the main beneficiaries of the Budget changes, closely followed by the exploration and production stocks. BP had jumped 9 to 295p by the close, with turnover totalling 5m shares. Shell, sold down to 571p early in the session, finished a net 2 higher at 580p.

The exploration and production stocks saw initial sluggish performance transformed into good gains across the board. Enterprise Oil settled 4 ahead at 492p and Lasmo, plagued by worries that the dividend may be cut when the preliminary figures are published later this month, gained 5 on balance at 186p.

An analyst commented: 'Any reduction in the tax-take from the North Sea, on existing and new fields, has got to be seen as good news for the oil companies.' Premier Consolidated, with its raft of small marginal fields in the North Sea, was seen as a big winner from the Budget moves. The shares ended 2 3/4 up at 29 1/2 p.

British Petroleum Shell Transport and Trading Enterprise Oil LASMO Premier Consolidated Oilfields GB United Kingdom, EC P1311 Crude Petroleum and Natural Gas P2911 Petroleum Refining P6231 Security and Commodity Exchanges CMMT Comment & Analysis MKTS Market data P1311 P2911 P6231 The Financial Times London Page 60 283
London Stock Exchange: Equities little changed by the close Publication 930317FT Processed by FT 930317 By TERRY BYLAND, UK Stock Market Editor

LONDON'S equity market made a cautious response to the Budget speech, which was still in progress at the official close of share trading last night. Initially, equities followed the government bond sector in turning down sharply when Mr Norman Lamont, the UK chancellor of the exchequer, disclosed a substantially higher estimate of Public Sector Borrowing Requirement for 1993/94 than the City expected.

There was concern that the implications for UK pension funds of the changes in dividend tax credits might force an overall rerating of the equity market. Also disappointing was the chancellor's apparent coolness on prospects for a further cut in domestic base rates at present. Later last night some strategists predicted a setback in equities.

However, UK share prices rallied before the close of trading yesterday as the market took aboard the wider range of Budget taxation proposals and the FT-SE 100 Index ended the session only 3.1 down at 2,919.3.

Among the measures welcomed by the stock market were the chancellor's reduction in North Sea Petroleum Revenue Tax, which brought strong rises in the oil sector in late dealings. But some analysts feared that other energy industry stocks could be hurt by the proposal to impose VAT taxes on domestic fuel bills. Higher taxes on motor fuels, tobacco, betting and beer had been largely expected, but the absence of any increase on spirits duty was well received.

Some traders felt that the chancellor had been discouraging on prospects for an immediate reduction in domestic interest rates. The lowering of the tax rate relief on mortgages had been foreseen and there was little reaction.

Equities were drifting lower in virtually stagnant trading conditions when Mr Lamont stood up in the House of Commons. The PSBR statement brought a swift widening in the loss on the FT-SE 100 Index from around 2 points to 14.1, for a reading of 2,908.3. The recovery in shares came equally quickly but there was very little trading as the market trend changed direction.

Seaq trading volume for the day fell to 492m shares. Unwillingness to take positions in the blue chips was indicated by a sharp increase in the percentage of non-Footsie shares to 85 per cent of the overall volume figure. On Monday, Seaq volume of 578.1m shares had a retail value of Pounds 1.20bn.

The FT-SE Mid 250 Index, which reflects business in a range of non-Footsie stocks, gained ground during the chancellor's speech to close 6.9 ahead at 3,118.9.

Strategy meetings at London's securities firms last night planned for the opening of the market today. At Strauss Turnbull, Mr Ian Harnett said: 'We do not think this Budget will be particularly positive for equities, unless there is an interest rate cut.' Further gains in the North Sea stocks are expected, however.

UK traders will also brace themselves ahead of tomorrow's policy meeting at the Bundesbank, when some strategists expect the reduction in key interest rates foreshadowed by the Bundesbank's recent cuts in money market repurchase rates.

On Friday, the UK retail price index for last month will be disclosed and this may yet set the stage for a cut in UK base rates.

GB United Kingdom, EC P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 60 563
London Stock Exchange: Equity futures and options trading Publication 930317FT Processed by FT 930317 By JOEL KIBAZO

THE ABSENCE from the Budget speech of encouragement for hopes of a cut in UK base rates brought a sudden retreat in the futures, towards the close of a dull and featureless session in the derivatives market, writes Joel Kibazo.

The March contract on the FT-SE started strongly at 2,929, up 8 from its close on Monday, and moved swiftly forward to reach the day's high of 2,935 within half-an-hour of the opening.

There was, however, no fol-low-through buying as both leading institutions and independent traders remained on the sidelines awaiting the outcome of the Budget. This caused March to drift lower to trade around the 2,925 mark for the next few hours.

It was the lack of any signs of a reduction in base rates that led to a sharp decline in March around 20 minutes before the official close, leaving it to test the 2,900 level. It proved to be a resistance point and the contract bounced to finish at 2,909, a 4-point discount to the underlying cash market, with turnover reaching a meagre 6,936 lots.

Further dealings in after-hours' trading, however, saw the contract drop through the 2,900 barrier.

There was very little action in the traded options and volume was only 23,072 contracts. Some 8,406 lots were dealt in the FT-SE 100 option and 2,386 in the Euro FT-SE 100 option. Amstrad was the busiest stock option with 2,001 lots traded.

GB United Kingdom, EC P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 60 270
World Stock Markets (America): Bank sector firmer on broker's upgrade Publication 930317FT Processed by FT 930317 By PATRICK HARVERSON NEW YORK

Wall Street

FOR THE second consecutive day, US stock markets moved in a narrow price range in light trading as investors searched for a new direction, writes Patrick Harverson in New York.

At the close the Dow Jones Industrial Average was up 0.54 at 3,442.95. The more broadly based Standard & Poor's 500 ended 0.06 off at 451.37, while the Nasdaq composite edged forward 0.26 to 695.47. New York SE volume, which on Monday hit its lowest level for the year, was again light by recent standards, at 218m shares.

After the wild fluctuations and heavy volumes of the previous few weeks, equities yesterday appeared to have settled into a temporary pattern of narrow price movements in thin trading. The pattern, said analysts, indicated that in the absence of compelling new economic statistics and a strong lead from Treasury prices, markets are searching for a new direction.

The day's only economic numbers provided little encouragement. The Commerce Department reported that housing starts rose by 2.5 per cent in February, a smaller increase than had been expected. Analysts, however, blamed the weak figures on the bad weather late last month, which is likely to have hit the construction of new homes.

The subdued trading yesterday may also have reflected reluctance among investors and dealers to trade heavily ahead of today's consumer price index report for February. Normally, the markets would not be overly concerned by the CPI number, but after last week's worryingly strong producer prices report - which sparked heavy selling of bonds and, later, equities - and this week's increase in commodities prices, investors have become newly sensitive to any hint that inflationary pressures may be building in the economy.

Drug shares once again took a beating from investors worried about government controls on pharmaceuticals prices. Merck weakened Dollars 7/8 to Dollars 37 3/4 , Pfizer Dollars 2 1/8 to Dollars 60 and Schering-Plough Dollars 1 1/2 to Dollars 58 1/4 .

Banks were firmer. Citicorp rose Dollars 1 to Dollars 29 5/8 in volume of 2.3m shares and Wells Fargo by Dollars 1/4 to Dollars 108 1/4 . Both were lifted by news that analysts at broking house Donaldson Lufkin & Jenrette had raised their earnings estimates for the two banks. Elsewhere in the sector, Chemical put on Dollars 1/2 at Dollars 43 1/4 .

Marion Merill Dow plunged Dollars 4 to Dollars 18 7/8 in volume of 1.8m shares after the company warned that its first-quarter sales would be 'substantially' lower than it recorded at the same stage a year ago.

Another company hit by an unexpected profits warning was Chemical Waste, which tumbled Dollars 2 to Dollars 17 1/4 in volume of 2.5m shares after stating that first-quarter earnings would be flat or lower, compared to a year ago.

Canada

TORONTO finished little changed after busy trading as a rise among forest products issues was offset by a drop in gold shares.

The TSE 300 index eased 5.3 to 3,556.8 and declines led rises by 323 to 296 after volume of 48.4m shares.

Eight of the 14 sub-groups closed higher, with forest products ahead by 1.8 per cent. Slocan Forest advanced CDollars 1 1/4 to CDollars 18 5/8 . The golds group fell 2.3 per cent as further comments by US Secretary of the Interior Bruce Babbitt concerning American Barrick pushed the heavily weighted stock down again, by CDollars 7/8 to CDollars 19 5/8 .

US United States of America CA Canada P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 57 611
World Stock Markets: European airlines begin to anticipate a recovery - But industry prospects are uneven Publication 930317FT Processed by FT 930317 By JOHN PITT

European airlines are facing the prospect of further losses in 1993 following a depressed performance last year. While passenger levels have risen slightly this year, earnings forecasts remain negative.

However, there may be some good news for airlines as the US and, to a lesser extent, the UK economies show signs that they may be emerging from recession.

Mr James Halstead, Swiss Bank's transport analyst, comments that the sector looks as if it is at the bottom of the downward cycle. But he draws a distinction between those carriers flying the transatlantic routes, such as British Airways, and those more dependent on Europe, Lufthansa for instance.

While operators using the transatlantic routes are beginning to see a pick-up in activity, those more dependent on continental European routes will continue to have problems as the recession there begins to deepen, he comments.

Mr Mark McVicar, transport analyst at NatWest Securities, is a little less optimistic and believes that an upturn in the sector will be delayed until 1994. 'This is about the earliest time before supply and demand begin to achieve any sort of balance,' he says.

Lufthansa surprised some observers when it blazed a trail at the beginning of the year under a European Community liberalisation directive allowing cheaper ticket pricing. The shares moved quickly ahead, reaching a year's high of DM122.50 before beginning to slip back. The stock closed yesterday at DM111.

The German carrier had not previously been induced into the pricing war against competitors but a tough couple of years has forced its hand: Mr Halstead comments that Lufthansa found that it had to discount following substantial losses in 1991 and 1992.

However, Mr McVicar observes that Lufthansa, which has made efforts to reduce its cost base, needs to go much further and quicker in that area. 'Lufthansa has said that it intends to break even by 1995/1996,' he says, 'but the equivalent cost-cutting measures were implemented by British Airways in almost half the time.' He adds that the airline faces more difficult industrial obstacles in, for instance, reducing staff levels than the UK operator.

By contrast KLM is seen by many analysts to be in a good position to benefit from any economic upturn, having made concerted efforts to cut its cost base. After a volatile performance since the beginning of the year the shares currently stand some 11 per cent higher.

Although, in the short term, the group's prospects are no better than most competitors, with another net loss in earnings forecast for 1993/94, the longer term scenario appears more secure.

Mr Richard Brakenhoff, transport analyst at Amsterdam brokers Pierson, points to benefits which will accrue from the agreement between the Netherlands and US over routes, the 'open skies' arrangement. Even its commercial links with Northwest Airlines, the troubled US carrier which had exerted a negative effect on KLM's results - the latter said last month it was writing off its 20 per cent stake in Wings, Northwest's holding company - may eventually prove valuable because of the US route network.

However, KLM's route to greater profitability depends a great deal, says Mr Brakenhoff, on whether or not it can reach an agreement with the present members of the 'European Quality Alliance' - SAS, Austrian Airlines and Swissair - on tighter links. At present KLM has a European market share of just above 3 per cent, compared with Lufthansa's 14 per cent, SAS's 9.8 per cent, 4.4 per cent for Swissair and 2 per cent for Austrian.

The outcome of these talks is uncertain, with the chairman of SAS having already said that he does not expect discussions to lead to a merger.

Finally, SAS could benefit from economic recovery, says Mr Torben Sand, analyst at Unibors, having realised the need for very dramatic cost reductions and restructuring which has already resulted in staff numbers being reduced by 3,500. But its long-term prospects are also tied to the future shape of the 'alliance'.

QR European Economic Community (EC) P4512 Air Transportation, Scheduled MKTS Market data CMMT Comment & Analysis P4512 The Financial Times London Page 57 705
World Stock Markets: South Africa Publication 930317FT Processed by FT 930317

INDUSTRIALS ended 37 lower at 4,445 on caution ahead of today's Budget, but golds advanced 24 to 1,076 in spite of a weaker financial rand and little help from the bullion price. The overall index finished 5 higher at 3,454.

ZA South Africa, Africa P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 57 69
World Stock Markets (Asia Pacific): Tokyo falls as Hong Kong stages a rally Publication 930317FT Processed by FT 930317 By EMIKO TERAZONO TOKYO

LIGHT profit-taking ahead of the March financial year-end depressed share prices, and the Nikkei average closed below the 18,000 mark after seven consecutive gains, writes Emiko Terazono in Tokyo.

The 225-issue average lost 117.88 at 17,968.30, finishing below 18,000 for the first time in three trading days. The index rose to the day's high of 18,117.09 in the morning, but was pushed down by profit-taking in the afternoon to set a low for the session of 17,945.22.

Volume remained almost unchanged, at 350m shares against 336m. Traders said that yesterday was the last trading day of the year for most corporate investors, who close their books this Friday. Declines led advances by 599 to 407, with 150 issues unchanged. The Topix index of all first section stocks dipped 8.89 to 1,344.71, but in London the ISE/Nikkei 50 index edged up 0.95 to 1,073.73.

Companies with close ties with Japanese railway groups gained ground after JR East, which plans to submit its application for listing next month, held a meeting for stock analysts on Monday. Some investors were encouraged by reports that more analysts had attended the meeting than had been expected.

While details for the listing have yet to be decided, JR East said it expected to target retail investors for its listing, offering a high dividend.

Mr Graeme McDonald, an analyst at James Capel, said future profits for JR East were dependent on its revenue from operations other than its core business, so that most investors would be looking at the level of projected capital expenditure. Nippon Densetsu Kogyo, a core electrical engineering company closely linked to the JR group, advanced Y60 to Y2,250.

Nippon Telegraph and Telephone declined Y1,000 to Y802,000 on profit-taking by dealers. NTT-related shares also lost ground, with Daimei Telecom Engineering, a telecom engineering concern, falling Y22 to Y827 and Kyowa Exeo losing Y23 to Y975.

In Osaka, the OSE average receded 83.72 to 18,992.43 in volume of 66.9m shares. The index declined for the first time in four trading days on small-lot selling in the afternoon. Roundup

THERE WERE some strong performances among the region's markets.

HONG KONG showed some recovery on buying by institutional investors. The Hang Seng index rose 125.43 to 5,980.04 but turnover dropped from HKDollars 5.5bn to HKDollars 3.9bn.

Sentiment remained nervous after China's political attacks, although there were expectations of good results from Cheung Kong and Hutchison Whampoa, which report tomorrow; Cheung Kong climbed 80 cents to HKDollars 21.50 and Hutchison by 40 cents to HKDollars 15.70.

HSBC regained HKDollars 1 at HKDollars 65.50, having reported better than expected 1992 profits after the close on Monday. Hang Seng Bank retrieved HKDollars 2.50 at HKDollars 65.

AUSTRALIA gathered momentum, encouraged by remarks from Mr Paul Keating, the re-elected prime minister, that there was scope for a cut in official interest rates. Some analysts said they were expecting a 1/2 percentage-point reduction in rates.

The All Ordinaries index ended 32.9 up at 1,659.3 in turnover of ADollars 281.1m. Mr Kerry Packer's Nine Network acquisition of 4.98 per cent of John Fairfax Holdings lifted the newspaper group's shares 12 cents to ADollars 1.96.

SINGAPORE closed higher following the government's announcement of changes in the Central Provident Fund's investment rules. The Straits Times Industrial index rallied 18.54 to 1,649.35, with some 124.6m shares traded. The government said on Monday that it would allow CPF members to withdraw more funds to invest in equities and unit trusts.

SEOUL weakened for the first time in four trading sessions on worries about renewed political tension between South and North Korea, caused by Pyongyang's withdrawal from an international nuclear pact. The composite index retreated 7.86 to 637.87 as turnover fell Won200bn to Won300bn.

MANILA lost early gains as investors switched funds to Hong Kong, but the composite index closed 4.13 up at 1,475.78.

NEW ZEALAND recouped Monday's losses, receiving a fillip from rises in Telecom of 8 cents to NZDollars 2.85, a record high, and Goodman Fielder of 9 cents to NZDollars 2.13. The NZSE-40 index gained 17.66 at 1,584.69 in turnover of some NZDollars 30.5m.

BOMBAY advanced for a second day since the market reopened following Friday's series of bombings, in which more than 60 people died at the BSE building. The BSE index added 38.58 at 2,459.85.

Brokers said shares rose on solid support from state-owned financial institutions, with supply limited because trading has been restricted to one hour and tight security had restricted the access of participants.

JP Japan, Asia HK Hong Kong, Asia AU Australia SG Singapore, Asia KR South Korea, Asia PH Philippines, Asia NZ New Zealand IN India, Asia P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 57 805
World Stock Markets (Europe): Bourses decline as rate prospects pall Publication 930317FT Processed by FT 930317 By Our Markets Staff

BOURSES decided that German interest rate prospects could sustain them for only so long, writes Our Markets Staff.

FRANKFURT eased by a fraction, rate cut hopes holding equities relatively firm against a background of disappointing, or inconclusive company news. The DAX index slipped 4.74 to 1,697.83 in turnover down from DM6.2bn to DM6.1bn.

Chemicals were under pressure after the string of accidents at Hoechst, which could trigger a series of government actions to tighten regulations and impose costly new safety controls on the industry.

MAN, the truckmaker and engineer, fell DM8 to DM297.50 on a downgrade and sell recommendation from DB Research, which cut its 1993 earnings estimate from DM23 to DM13 and the dividend in prospect from DM10 to DM7; Deutsche Babcock lost Monday's gains and more, falling DM5.30 to DM156.20 as attention shifted to the deterioration in its prospects for 1992-93.

Among carmakers, Volkswagen moved with the continental clock, rising DM5 to DM290.50 over the official session in reaction to Monday's late news that Mr Ignacio Lopez, VW's erstwhile recruit, would be leaving GM after all - and falling DM2 after hours as dealers waited for the results of a VW press conference, and mused that Mr Lopez, a tough cost cutter in the US, might find German conditions less to his liking.

Meanwhile, Mr Detlev Klug at B Metzler in Frankfurt offered a cautionary word about equity prospects after Thursday's Bundesbank meeting. Relative strength indicators were looking toppy, he said, a limited rate cut from Buba could be seen as solidarity pact window dressing, and the expiry of options contracts on Friday could exaggerate any adverse reaction.

MILAN was battered by a sharp fall in Olivetti which followed Monday's news of a L900bn rights issue. After an early suspension on a 14 per cent drop, the shares closed L377, or 17 per cent lower at L1,825. This was reflected in the Comit index which finished 6.00 weaker at 502.42.

Mr Carlo de Benedetti has said that the capital increase is needed to help the group take advantage of a possible recovery in the European computer market, where it is perceived to have an advantage over IBM and Compaq because of the strength of the dollar.

Some analysts commented that Olivetti had made efforts already to restructure and streamline its business into sector areas with the best growth opportunities, such as telecommunications and computer notebooks. NatWest Securities in London said that the convertible bonds offered as a partial alternative to conventional equity looked attractive: they will be issued at L1,000, and carry a coupon of between 6 and 8 per cent.

Olivetti's parent company, Cir, which announced a loss of L540bn in 1992, also eased on the news, closing down L119 at L1,050 while Cofide, another of Mr De Benedetti's companies, was off L122 at L1,138.

The Olivetti news weighed on other stocks which, observers believe may make a rights issue; Fiat, for instance, lost L225 to L5,560.

PARIS remained depressed with a further fall in the CAC-40 index of 10.78 to 1,975.25 as turnover stayed low at FFr2.3bn.

There was activity in Moulinex, which began the week with a decline of some 6.5 per cent and followed yesterday with another fall of FFr6.80, or 7 per cent to FFr90.70. Some analysts remarked that there had been reports yesterday that the group had clarified its shareholding structure, suggesting that it could proceed with a rights issue. The share price had risen to a year's high of FFr107 on takeover speculation.

MADRID got the better January inflation figures it expected and sold, the general index falling 2.23 to 235.50.

STOCKHOLM staged a modest rally on lower domestic interest rates as the Affarsvarlden general index gained 17.7 to 1,017.8, its first gain in five trading days. Turnover improved to SKr558m from Monday's SKr532m.

Ericsson, the telecommunications group, remained the market's most active issue as the B shares rose SKr5 to SKr240 in turnover of some SKr90m.

ISTANBUL decided that the results of some 40 companies announced yesterday had failed to match expectations, and the market index closed 75.43 lower at 5,716.82.

----------------------------------------------------------------------- FT-SE ACTUARIES SHARE INDICES ----------------------------------------------------------------------- March 16 THE EUROPEAN SERIES ----------------------------------------------------------------------- Hourly changes Open 10.30 11.00 12.00 ----------------------------------------------------------------------- FT-SE Eurotrack 100 1153.85 1152.19 1151.40 1151.50 FT-SE Eurotrack 200 1221.52 1221.41 1221.06 1222.74 ----------------------------------------------------------------------- Hourly changes 13.00 14.00 15.00 Close -----------------------------------------------------------------------

FT-SE Eurotrack 100 1152.12 1151.73 1151.42 1151.53 FT-SE Eurotrack 200 1222.69 1221.92 1222.26 1222.33 ----------------------------------------------------------------------- Mar 15 Mar 12 Mar 11 Mar 10 Mar 9 ----------------------------------------------------------------------- FT-SE Eurotrack 100 1153.62 1145.86 1163.60 1167.52 1164.26 FT-SE Eurotrack 200 1219.52 1212.44 1232.53 1231.98 1230.72 ----------------------------------------------------------------------- Base value 1000 (26/10/90) High/day: 100 - 1153.85; 200 - 1223.43 Low/day: 100 - 1150.91 200 - 1219.93. -----------------------------------------------------------------------

DE Germany, EC IT Italy, EC FR France, EC ES Spain, EC SE Sweden, West Europe TR Turkey, Middle East P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 57 838
Foreign Exchanges: Sterling firms on UK Budget Publication 930317FT Processed by FT 930317 By JAMES BLITZ

THE POUND gained 2 pfennigs against the D-Mark yesterday as dealers absorbed the message from the UK chancellor that the current level of UK base rates was 'consistent with the achievements of the government's inflation objectives', writes James Blitz.

In the run-up to yesterday's Budget statement, sterling rose against the German currency from around DM2.3900 at 8.30am to DM2.4050 shortly before the chancellor spoke in the House of Commons.

The stronger sentiment towards the pound was based on the correct impression that the chancellor would not ease monetary policy further in his annual budget statement.

His announcement that the projected Public Sector Borrowing Requirement for 1994/95 had been raised to Pounds 50bn triggered a 1/2 pfennig loss for the pound at one stage of the speech.

However, news of the chancellor's measures to tighten fiscal policy over the next few years helped to boost confidence in sterling on both currency and fixed income markets. The pound closed in London at DM2.4025, up 2 pfennigs on the day. At lunchtime in the US, the UK currency was trading higher at DM2.4045.

Mr David Cocker, chief economist at Chemical Bank in London, said yesterday's budget statement would consolidate the favourable sentiment towards sterling seen in recent weeks.

He said there were already signs that the UK economy was recovering, and the chancellor's promise to tighten fiscal policy over the next few years would be a further attraction for investors. But he also felt that the budget proposals themselves were unlikely to push the currency up very far.

In Europe, the immediate outlook for the European exchange rate mechanism remained uncertain. The Bundesbank's decision not to change the interest rate at which it lends short term funds to German commercial banks added to ERM tensions.

Market participants appeared to believe that the Bundesbank would cut its official Lombard and discount rates by 50 basis points at tomorrow's council meeting. However, yesterday's decision to offer a fixed rate repo at the unchanged rate of 8.25 per cent disappointed some dealers.

Mr Gerard Lyons, chief economist at DKB International in London, expressed surprise that the market was so optimistic about an official rate cut following the recent conclusion of the Solidarity Pact talks between the German government and opposition.

'The pact actually revises up the budget deficit forecast for 1995 and there is little reason for the Bundesbank to be optimistic,' he said.

At least one trader said the Bank of France was subtly buying its currency to staunch selling. The franc finished at FFr3.4000 to the D-Mark, having been as low as FFr3.4043 on Monday.

GB United Kingdom, EC DE Germany, EC FR France, EC P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 51 471
Money Markets: Repo unchanged Publication 930317FT Processed by FT 930317 By JAMES BLITZ

THERE WERE strong expect-ations yesterday that the Bundesbank would cut official rates at its council meeting this week, even though the central bank left the rate at which it offers weekly funds to commercial banks unchanged, writes James Blitz.

The Bundesbank announced that it would be setting a fixed rate repurchase tender at 8.25 per cent, unaltered from the rate set two Fridays ago. The move caused some disappointment in money markets, and the June Euromark contract slipped 2 basis points to finish at 93.22.

However, some dealers suggested that the unchanged repo rate was largely neutral and that there had recently been signs of a willingness among Bundesbank council members to ease policy. The predominance of the bulls in the market was seen by the fact that three-month D-Marks hovered at around 7.75 per cent, some 50 basis points below the current repo rate level.

Whatever the outlook for official policy, conditions in the German money market remained tight as dealers continued to adjust to the recent changes in the Bundesbank's minimum reserve requirements.

Call money was quoted as high as the Lombard rate level of 9 per cent. It came down to about 8.67 per cent in the afternoon following comments from Mr Johann Wilhelm Gaddum, a Bundesbank council member, who said that the German central bank would aim to calm markets via the allocation of its securities repurchase funds today.

In the sterling cash market, three-month money ended unchanged at 5 15/16 per cent after the UK chancellor made no alteration to UK base rates in his budget statement.

Yesterday morning, there was speculation that Mr Lamont would ease UK interest rates. Shortly before Mr Lamont spoke, three-month money was bid down to around 5 7/8 per cent by speculators prepared to take a bet on a cut. The March short sterling contract, which expires today, was also trading at 94.10 shortly before the budget statement.

After the speech, the March contract fell steeply to 93.95, down 12 basis points on the day. The sharp rise in the level of three-month sterling may also have been due to the expectation that there will be large shortages in the discount market later this week.

DE Germany, EC GB United Kingdom, EC P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 51 400
Commodities and Agriculture: Minor metals prices Publication 930317FT Processed by FT 930317

Prices from Metal Bulletin (last week's in brackets).

ANTIMONY: European free market 99.6 per cent, Dollars per tonne, in warehouse, 1,610-1,680 (1,620-1,680).

*****

BISMUTH: European free market, min. 99.99 per cent, Dollars per lb, tonne lots in warehouse, 2.20-2.40 (same).

*****

CADMIUM: European free market, min. 99.5 per cent, Dollars per lb, in warehouse, 0.35-0.45 (same).

*****

COBALT: European free market, 99.5 per cent, Dollars per lb, in warehouse, 16.00-16.50 (15.85-16.50).

*****

MERCURY: European free market, min. 99.99 per cent, Dollars per 76 lb flask, in warehouse, 120-140 (same).

*****

MOLYBDENUM: European free market, drummed molybdic oxide, Dollars per lb Mo, in warehouse, 2.05-2.15 (2.00-2.10).

*****

SELENIUM: European free market, min 99.5 per cent, Dollars per lb, in warehouse, 4.70-5.40.

*****

TUNGSTEN ORE: European free market, standard min. 65 per cent, Dollars per tonne unit (10 kg) WO, cif, 31-43 (33-44).

*****

VANADIUM: European free market, min. 98 per cent, Dollars a lb VO, cif, 1.60-1.70 (same).

*****

URANIUM: Nuexco exchange value, Dollars per lb, UO, 7.60 (same).

US United States of America P333 Primary Nonferrous Metals COSTS Commodity prices P333 The Financial Times London Page 50 198
Commodities and Agriculture: Italy tries to limit foot and mouth restrictions Publication 930317FT Processed by FT 930317 By ROBERT GRAHAM ROME

THE ITALIAN agriculture and health authorities were yesterday attempting to limit the scope of restrictions imposed with effect from today by the European Community on the export of live cattle, sheep and pigs as well as processed meats following the discovery of an outbreak of foot and mouth disease.

The outbreak occurred in the southern region of Basilicata but has spread to four other provinces including to important cattle centres in the Veneto. Livestock exports earn little more than L15bn (Pounds 6.5m) a year; but if restrictions on processed meats (hams, salamis etc) are extended beyond the March 31 deadline the damage could being serious as these earn L400bn a year.

The main effect is already being felt in the domestic market. Since the outbreak was first discovered on March 10 3,921 animals have been slaughtered, including 2,000 sheep, 1,121 cattle and 652 pigs. The net loss is put at about L2.5bn.

But at Monday's market at Modena in northern Italy, the most important in the country, there were fears the eventual losses could be high. In particular it was feared that lamb being reared for Easter would be badly affected. Farmers also said they feared the EC would take a tough line and use the outbreak of the disease as an excuse to force Italy to reduce its dairy herd in order to conform to the community's new milk quotas. Italy risks having to kill more than 400,000 head of cattle to conform with the quotas; and one scheme floated was to export this quantity to Albania as aid under an EC grant.

The cause of the outbreak has still not been formally identified. However, magistrates are thought to be investigating purchases of cattle from Croatia. They were shipped via Greece through Italy's southern port of Bari.

IT Italy, EC QR European Economic Community (EC) P02 Agricultural Production-Livestock P9641 Regulation of Agricultural Marketing P9721 International Affairs MKTS Foreign trade GOVT Government News P02 P9641 P9721 The Financial Times London Page 50 352
Commodities and Agriculture: BHP steps up Chinese exploration efforts Publication 930317FT Processed by FT 930317 By TONY WALKER BEIJING

BROKEN HILL Proprietary, the Australian steel and resources giant, is stepping up its involvement in China with new explorations ventures in oil and minerals. But its chairman, Mr Brian Loton, says the company is proceeding cautiously in a complex market.

Speaking in Beijing at the weekend, Mr Loton said BHP's approach to China would be 'practical and hard-nosed', but at the same it recognised the growth of new opportunities now that the country was 'opening up'.

The BHP chairman, who has tended to be regarded by company insiders as a 'China-sceptic', was visiting Beijing to assess an expanding range of options for BHP in both the resources and oil and gas sectors. He was received by Vice Premier Zou Jiahua, one of the Chinese leaders responsible for economic management, and officials of the Ministry of Metallurgical Industries.

Mr Loton said that representatives of BHP Petroleum would be visiting China later this month to examine possible involvement in exploration of the vast Tarim basin in the north-west, which has recently been opened to foreign companies and may have reserves to match those of Saudi Arabia. He stressed, however, that BHP on its own did not have the resources necessary to explore China's desert wastes. This indicated that BHP might join forces with an oil major in a Tarim basin venture.

BHP's experiences looking for oil in China had not been encouraging, Mr Loton noted. It had, for example, drilled 23 dry wells in the Yellow Sea and Pearl River delta in a consortium with British Petroleum. He added, nevertheless, that these setbacks had 'not dimmed our enthusiasm,' and that BHP was either actively engaged in exploration or was evaluating opportunities in several offshore areas. These included the Bohai Gulf in northern Chinese waters, the South China Sea and areas off Hainan island in the south. BHP was also expected to bid for blocks in the East China Sea off Shanghai in June.

The company was also spending about ADollars 4m to evaluate a lead/zinc prospect in Sichuan province in China's centre-west. This venture marks something of a first for a foreign company in the strategic minerals and metals area.

China has tended to guard jealously its minerals and onshore oil and gas resources from foreign involvement, but with demands from the leadership for speedier economic development, officials are now beginning actively to seek assistance abroad.

Mr Loton said that his company had no immediate plans for further minerals exploration ventures, but he also noted that China recognised the expertise of companies like BHP in both looking for and exploiting mineral deposits. China has barely scratched the surface of its minerals assets across a vast country. An obsession with gold - in the past two decades about 70 per cent of China's exploration resources were devoted to looking for the metal - has been a serious drag on overall minerals development.

BHP's chairman and his fellow executives were bullish about the company's iron ore sales to China, which they expected would rise by about 10 per cent to some 5m tonnes in 1993. The sales are being driven by the extraordinary growth in the Chinese economy in the past year of 12.8 per cent, well up on revised growth targets of 9 per cent.

China produced 78m tonnes of steel last year, making it the world's number three producer. It is aiming for 100m tonnes a year by 2000, which represents continuing good news for BHP and other Australian iron ore suppliers.

Broken Hill Pty BHP Petroleum AU Australia CN China, Asia P1311 Crude Petroleum and Natural Gas P1031 Lead and Zinc Ores P1011 Iron Ores P1041 Gold Ores COMP Joint venture RES Natural resources MKTS Foreign trade P1311 P1031 P1011 P1041 The Financial Times London Page 50 645
World Commodities Prices: Market Report Publication 930317FT Processed by FT 930317 By REUTER

New York raw SUGAR prices were broadly lower by midsession on sentiment that Monday's sharp rise might have been overdone. The market, already poised for an advance after Friday's firm close, soared on news that Cuba's crop and mills might have been damaged by the weekend storm which swept up the eastern US. But analysts said uncertainty about the extent of the damage was paring the gains. New York COFFEE prices were down at mid-day, weighed down by lack of news in the physical market, large consumer stocks and little chance of renewed ICO export quotas. GOLD edged ahead on the London bullion market, but was meeting stiff resistance at Dollars 330 a troy ounce on Comex at midday. London dealers said gold still had to overcome downward pressure from producer sales with the South African rand gold price approaching record levels. Both PLATINUM and PALLADIUM were weighed down in London by Japanese selling as the dollar slumped against the yen. Compiled from Reuters

GB United Kingdom, EC P0179 Fruits and Tree Nuts, NEC P0133 Sugarcane and Sugar Beets P3339 Primary Nonferrous Metals, NEC P6231 Security and Commodity Exchanges COSTS Commodity prices P0179 P0133 P3339 P6231 The Financial Times London Page 50 214
Commodities and Agriculture: Price surge spells danger for timber industry - Canadian producers fear that users may turn to substitutes Publication 930317FT Processed by FT 930317 By BERNARD SIMON

EVEN AS Canada's timber industry celebrates surging prices for its products, worries are growing that it will soon be caught in the same worldwide squeeze on supplies that has driven lumber prices to record levels.

For the moment the jump in prices is a welcome ray of light in an otherwise gloomy sector. The strong lumber business has helped integrated forestry companies to offset their losses on pulp and newsprint and other types of paper. Specialised lumber producers are basking in record profits.

According to Madison's Canadian Lumber Reporter, an industry newsletter, standard spruce, pine and fir two-by-four planks are selling this week for USDollars 460 per thousand board feet in the US, up from Dollars 305 in mid-January and Dollars 235 a year ago. Prices are also sharply higher in Japan, the biggest market for British Columbia's coastal saw mills.

Returns to Canadian producers have been further boosted by a 12 per cent decline in the Canadian dollar since November 1991.

A recovery in housing starts and other construction has been the traditional signal for a run-up in lumber prices. But the present price explosion owes as much to nervousness about future supplies of timber as to rising consumption. Indeed, some producers fear that prices are now so high that homebuilders and other users may turn to substitutes such as steel, cement and plastics.

Supply concerns in the US are centred on the large tracts of forest in Oregon and Washington that the federal government has withdrawn from logging to protect the northern spotted owl and other threatened species.

Across the Pacific, Japanese buyers have been forced to broaden their horizons as a result of restricted supplies from south-east Asia and disruption of exports from Russia.

The Canadians have rushed to fill the gaps. Canadian lumber exports to the US will jump by 1.2bn board ft this year to a near-record 14.4bn, according to a study published in Madison's by Mr Doug Smyth, research director of the Canadian branch of the International Woodworkers of America union.

One reason for the recent surge in prices, however, is that US buyers can no longer rely on Canada to meet the full shortfall in domestic supplies. Many mills north of the border are more eager these days to widen the market for value-added, finished lumber in Japan and Europe, rather than increase their share of the market for lower-margin, commodity-grade products to the US.

The British Columbia coastal industry, which has the best quality trees but also high transport and cutting costs, is already geared almost entirely for offshore markets, mainly Japan and Europe, but increasingly Taiwan and China. Some producers in the interior of the province, who in the past have shipped almost exclusively to the US, are also becoming more active in the Japanese market.

Mr Brian McCloy, vice-president of the BC Council of Forest Industries, estimates that 10 to 15 per cent of interior lumber is now shipped overseas.

Canadian supplies are starting to be threatened however, by the same environmental pressures that have slashed harvesting in the north-west US.

Mr John Burch, general manager for marketing at Primex Forest Products in Delta, BC, predicts 'one or two major closures' among British Columbian saw mills over the next few years as a result of tightening land-use curbs. Weldwood of Canada last week announced the closure of a saw mill at Williams Lake because of timber supply curbs. Timber shortages have already prevented some interior mills from adding extra shifts to meet growing US demand.

The pressures come from various sources. There are no spotted owls in Canada, but environmentalists are demanding wider protection for the marbled murrelet, a small sea bird that they claim nests in old-growth forests. The murrelet has already been listed as a threatened species in the US.

Forestry companies have also drawn fire for 'clear-cut' logging, which has denuded some of the most scenic parts of the province.

The BC government has pledged to double - from 6 per cent to 12 per cent - the land set aside for parks and wilderness areas. The Committee on Resources and the Environment, headed by a former provincial ombudsman, was set up last year to allocate land for commercial forests and other uses. It has already appointed three land-use committees to draw lines on the map of Vancouver Island, the Cariboo Mts in the east-central part of the province and the West Kootenays in the south-east.

Meanwhile, the timber companies are nervously watching a myriad of lower-profile initiatives, such as proposals to ban logging along river banks and to increase the bio-diversity of existing forests. These proposals threaten not just to put trees out of bounds for commercial logging, but also to push up costs by impeding access of men and machinery to the forests that can be cut.

An official at MacMillan Bloedel, the biggest coastal lumber producer, says 'these things are hurting us even more than the large-scale set-asides'.

Canada's lumber industry senses however, that it has one advantage over its US counterpart in the fight against tightening environmental laws.

About 40 per cent of the trees in Washington and Oregon are owned by the US federal government, but in Canada, forests are mostly under the control of the provinces - 95 per cent, in the case of British Columbia. Industry leaders hope that provincial governments will be more receptive than remote federal bureaucrats to arguments that curbs on logging will lead to heavy job losses and the devastation of some small communities. They note that forestry is the biggest contributor to the British Columbia economy, while it ranks only third in Washington state (after aerospace and farming).

MacMillan Bloedel contends that a 10 per cent reduction in the British Columbian timber harvest would put 50,000 people out of work and add CDollars 750m (USDollars 600m) a year to the provincial budget deficit.

CA Canada P0811 Timber Tracts P2411 Logging COSTS Product prices MKTS Market data P0811 P2411 The Financial Times London Page 50 1027
Commodities and Agriculture: 5 per cent cost added to US housebuilding Publication 930317FT Processed by FT 930317 By LAURIE MORSE CHICAGO

The squeeze on timber harvesting and the resulting surge in lumber prices has added as much as 5 per cent to the cost of building a new home in the US, a development that is only partially offset by falling mortgage rates and rising new home demand, writes Laurie Morse in Chicago.

The rocketing cost of lumber has prompted the influential National Association of Home Builders, a 160,000-member organisation, to ask President Bill Clinton to convene a meeting between US logging and environmental interests. Mr Clinton has asked Vice President Al Gore to organise the meeting.

Mr Michael Carliner, chief economist for the home builders' group, said a 90 per cent rise in lumber prices since October had increased the cost of building a 2,000 square foot home that might sell for Dollars 120,000 by about Dollars 4,500. It takes an estimated 15,000 board feet of lumber to build an average home, with wood products used for flooring and trim as well as framing. The average price for 1,000 board feet of a mixture of lumber grades, as reported by the Random Lengths Lumber service, was Dollars 474 last week, up from Dollars 249 in October.

'The market has probably overshot its mark, with a lot of panic buying,' said Mr Carliner. 'Lumber producers who own their own forest land may be holding product off the market waiting for higher prices.'

Timber sales from the south-eastern US are rising to fill the supply gap, but analysts say the south is also facing restrictions because of the endangered species act and a broader definition of wetlands.

US United States of America P1521 Single-Family Housing Construction P2411 Logging COSTS Product costs COSTS Product prices MKTS Market data P1521 P2411 The Financial Times London Page 50 313
World Commodities Prices: Jute and Cotton Publication 930317FT Processed by FT 930317

JUTE

C and F Dundee; BTC USDollars 355, BWC USDollars 380, BTD USDollars 320, BWD USDollars 340. C and F Antwerp; BTC USDollars 340, BWC USD340, BTD USDollars 315, BWD USDollars 315.

COTTON

LIVERPOOL- Spot and shipment sales amounted to 40 tonnes for the week ended 12 March, compared with 238 tonnes in the prevoius week. Subdued offtake did not bring many operations. support was forthcoming in certain specialist styles notably in the African range.

US United States of America P0131 Cotton P6231 Security and Commodity Exchanges COSTS Commodity prices MKTS Market data P0131 P6231 The Financial Times London Page 50 112
Commodities and Agriculture: LME stocks top 3m-tonne mark Publication 930317FT Processed by FT 930317 By KENNETH GOODING, Mining Correspondent

METALS MARKETS received a psychological battering yesterday when another huge rise in London Metal Exchange stocks took the total above 3m tonnes for the first time.

Even though most aluminium, lead, nickel, tin and zinc producers were unprofitable at present, metal prices were unlikely to recover substantially with so much highly-visible stock weighing down the market, analysts suggested.

LME stock levels were 'indicative of the situation in the physical markets. Economic recovery in the US is being offset by weakness in Germany and Japan,' said Mr Angus MacMillan, research manager at Billiton-Enthoven Metals, part of the Royal Dutch/Shell group. He recalled that Japan was the second most important consumer of all base metals except for nickel, of which it was the biggest consumer. Germany was the third-largest consumer of all six base metals traded on the LME.

However, Mr Nick Moore, metals analyst at Ord Minnett, the Westpac subsidiary, pointed out that there were now about 325 LME-authorised warehouses world-wide compared with only 16, all in Europe, in 1982. This had encouraged producers and consumers to move their stock on to the LME so not all of the metal was readily available.

Nevertheless, Billiton's Mr MacMillan said that total western world stocks - not just those in LME warehouses - of aluminium and nickel were at 'horrendous' levels and those of tin and zinc were heading fast in that direction. Copper and lead stocks were now 'uncomfortably high'.

Mr MacMillan said: 'We need a return to synchronised growth in the major industrialised economies before there is any sustained recovery in metals demand - and there is not much chance of that before the year end.'

----------------------------------- LME WAREHOUSE STOCKS (As at Monday's close) ----------------------------------- tonnes ----------------------------------- Aluminium +1,950 to 1,701,650 Copper +6,700 to 346,100 Lead -2,150 to 235,150 Nickel +222 to 85,752 Zinc +7,825 to 587,400 Tin +180 to 19,170 -----------------------------------

GB United Kingdom, EC P6231 Security and Commodity Exchanges P333 Primary Nonferrous Metals CMMT Comment & Analysis COSTS Product prices P6231 P333 The Financial Times London Page 50 357
Commodities and Agriculture: Bolivia faces mine crisis Publication 930317FT Processed by FT 930317 By CHRIS PHILIPSBORN LA PAZ

BOLIVIA'S MINING industry, which has only just begun to recover from the market crash caused by the collapse of the International Tin Council's buffer stock operation in 1985, is bracing itself for a second shock.

Both the private and public sectors have already suffered a depressing opening to the new year. Lithco pulled out of a Dollars 1.5bn deal with the Bolivian government in January. Shortly afterwards Jordex Resources withdrew after selling its majority stake in Minera Tiwanacu. Some private mining concerns, including Britain's RTZ are said to be considering slimming down their presence in Bolivia.

Two existing joint ventures between Comibol, the state mining corporation, Cominesa and a subsidiary of Brazil's Paranapanema are still inoperable because of union opposition. The government's continuing reluctance to tackle the unions means further joint venture contracts are likely to be stalled before the June general elections.

This already fragile situation is complicated by the fall in international prices for zinc, which now tops Bolivia's mining production, and also gold, silver, wolfram and antimony. Bolivian mining minister Mr Alvaro Rejas believes the industry is facing a crisis similar to that caused by the collapse of tin prices in 1985, when some 23,000 state miners were made redundant.

Lithco Jordex Resources Minera Tiwanacu RTZ Corp Comibol Cominesa Paranapanema BO Bolivia, South America P10 Metal Mining COMP Joint venture MKTS Market data COSTS Product prices P10 The Financial Times London Page 50 254
Government Bonds: Disappointment greets increase in UK supply Publication 930317FT Processed by FT 930317 By TRACY CORRIGAN, PATRICK HARVERSON and REUTER LONDON, NEW YORK

LONG-DATED gilts fell by a point, while the short end of the market dropped half a point, following disappointment over Chancellor Norman Lamont's budget.

The main worry in the gilts market currently is supply, which has increased sharply due to the government's higher funding needs as a result of economic recession.

On this issue, there was nothing to cheer the market. The chancellor announced a public sector borrowing requirement for this year of Pounds 35bn, in line with expectations. But the Pounds 50bn figure given for the financial year 1993-94 was higher than dealers had hoped.

'The market was disappointed by the lack of action on next year's PSBR,' said Mr Simon Briscoe, a gilts analyst at Greenwell Montagu, adding that some traders had been looking for a reduction to around Pounds 45bn.

The other big disappointment was that only a slight change was made to funding rules in the gilts market.

The chancellor announced that banks' and building societies' purchases of gilts will now count towards funding.

These have amounted to an estimated Pounds 4bn to Pounds 6bn this year, but could fall back again, and are not expected to make a substantial impact on gilts funding needs. Some traders had hoped that Treasury bills and foreign currency debt would be included.

An announcement by the Bank of England that the frequency of gilt auctions would be increased to roughly monthly intervals, and the size increased to between Pounds 2bn and Pounds 4bn per auction, was in line with expectations.

The rest of the news in the budget was bypassed by the gilts market. 'There was neither good nor bad news on inflation, and growth forecasts were in line with expectations,' one analyst said.

On Liffe, the June long gilts contract ended more than 1 1/4 points down at 105 9/16 .

ELSEWHERE in Europe, bond markets opened lower as traders pondered the German solidarity package and its implications for German finances, but recovered somewhat to end only slightly lower on the day. German bond prices slipped 1/4 point ahead of tomorrow's Bundesbank meeting, partially reversing gains made earlier in the week, while French bond prices edged down as the franc came under pressure.

US TREASURY issues firmed across the board after a hesitant start yesterday, with prices boosted by a weaker-than-expected housing report, and in the afternoon by the Federal Reserve's outright purchase of coupons.

In late trading, the benchmark 30-year government bond was up 11/32 at 103 1/4 , yielding 6.865 per cent. At the short end of the market, the two-year note was also firmer, up 1/8 at 99 3/4 , to yield 3.997 per cent.

Prices firmed at the short end in early trading after the Commerce Department reported that housing starts gained 2.5 per cent in February.

While shorter-dated prices edged higher, at the long end the market remained flat, with investors reluctant to commit themselves at the long end ahead of today's important consumer prices report for February.

But the long end recovered later in the day after the Fed unexpectedly bought coupons outright to address a seasonal need to add reserves to the banking system.

THE Luxembourg Treasury is studying the possibility of issuing Luxembourg franc government bonds and creating a liquid secondary market in the paper, Reuter reports.

Unlike neighbouring Belgium, Luxembourg does not have a pressing need to issue debt paper as its debt is negligible by European Community standards. But issuing government debt paper, notably a benchmark bond, would enhance the market, the Luxembourg Treasury said.

GB United Kingdom, EC DE Germany, EC US United States of America LU Luxembourg, EC P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 49 640
International Bonds: Investors spend a day on the sidelines Publication 930317FT Processed by FT 930317 By ANTONIA SHARPE

THERE were few new issues in the international bond market yesterday as investors retreated to the sidelines ahead of the UK budget and the Bundesbank's council meeting tomorrow.

The African Development Bank is expected to launch a Dollars 500m Eurobond issue in the next few days, via Goldman Sachs and Lehman Brothers. Otherwise, syndicate managers said that it was unlikely that there would be many more new issues this week.

Two foreign borrowers, the Bank for Dutch Municipalities, and SNCF, the French railway, tapped the Swiss franc market for SFr150m and SFr300m respectively.

Both issues have a maturity of eight years, which syndicate managers said suited the requirements of the borrowers and met demand from investors for paper in a relatively neglected area of the Swiss yield curve.

They noted that most of the recent Swiss franc issues had been either in the five-year or 10-year area, but that there had not been much in between. Both issues were trading within fees in mid-afternoon.

Meanwhile, KfW International Finance's DM1.5bn 10-year Eurobond issue, launched on Monday, was priced at 99.30 to yield 15 basis points over the 7 1/8 per cent bund due December 2003, in the middle of the indicated range of 14 to 16 basis points.

The spread was broadly unchanged when the bonds were freed to trade.

But, as the market had expected, the yield spread on Denmark's aggressively-priced five-year Eurobond issue widened to around 15 basis points over the series 105 of medium-term German government bonds from 10 basis points at the launch on Monday.

FR France, EC QR European Economic Community (EC) CH Switzerland, West Europe DK Denmark, EC P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 49 305
International Capital Markets: ADB launches yen-denominated 'dragon' issue Publication 930317FT Processed by FT 930317 By ANTONIA SHARPE

THE Asian Development Bank (ADB) yesterday launched its first yen-denominated bond issue in the so-called 'dragon bond' market which is targeted at non-Japanese investors in Asia.

Daiwa Singapore, lead manager, said the Y30bn five-year issue was priced at 99.55 with a 4 per cent coupon. The bonds were priced to yield 32 basis points above the 106th Japanese government bond, also a five-year issue. The bonds will be listed in Singapore, Taiwan and Hong Kong.

The dragon bond market has been pioneered by the ADB to develop Asia's capital markets.

Asian Development Bank PH Philippines, Asia P602 Commercial Banks TECH Services P602 The Financial Times London Page 49 125
International Capital Markets: Japan's rush for corporate paper provokes reform - Barriers are coming down Publication 930317FT Processed by FT 930317 By EMIKO TERAZONO

THE weakness of the Tokyo stock market and the reluctance of Japanese banks to lend have forced Japanese industry to turn to the domestic corporate bond market which, until recently, has been constrained by regulation, restrictive market practices and conservative investors.

The pace of reform has been quickened by the rising number of companies dipping into the corporate bond market, says Mr Masaaki Nogawa, head of Nippon Telegraph and Telephone's finance department.

With redemptions of over Y10,000bn (Dollars 84.7bn) worth of equity-linked bonds expected in the year to March 1994, Y5,000bn is expected to be raised through the straight bond market.

But the surge in corporate bond issues has flushed out inefficiencies in the secondary market. Traders and issuers blame structural barriers. The lack of a centralised settlement system has limited trading, and reporting requirements imposed by the Bank of Japan on borrowing and lending bonds has restricted market-making by securities houses.

The lack of a proper government bond yield curve has given little incentive to use corporate bonds as hedging or arbitrage instruments against government bonds. Mr Nogawa points out that active trading on the government bond market is almost limited to the benchmark bond.

But the barriers also seem to stem from attitudes of market participants. For most institutional investors, corporate bonds are still instruments kept until maturity.

The lack of interest among investors has resulted in a situation where the bid, or buying price, of one securities house would sometimes be placed higher than the offer, or the selling price, at another house.

For many Japanese brokers, which are not used to taking risks on their own capital, market-making is still a new concept. While eight houses - including Morgan Stanley, Goldman Sachs, Nomura Securities, Daiwa Securities, Nikko Securities and Yamaichi Securities - now quote two-way prices through trading screens, sparse investor interest has led to distorted prices.

Some issuers blame the inconsistent offering methods in the primary market for the lack of investor support. Mr Nogawa at NTT says pricing on the primary market is still not transparent.

Traditionally, domestic corporate bonds were issued using the so-called 'proposal' method, under which underwriting is awarded to the securities house with the most competitive bid. Intense competition for underwriting contracts led to unrealistic offering prices. To break from such practices, NTT appointed Morgan Stanley Japan, along with Nomura, as lead managers of its issue. 'We needed innovation,' says Mr Nogawa.

NTT has since led the way in changing the market by gaining approval for trading on the secondary market in the offering period. Former practice required investors to hold bonds until the offering period was over, leaving them vulnerable to market movements.

From April, the ministry of finance will remove other barriers deterring companies from the domestic bond market.

Limits on the amount that can be issued are due to be eliminated. Also, the commission-bank system, under which every issue needs a commercial bank acting as an agent representing investors, will be scaled back. Companies say the ministry's move is a start, but it will probably take further time for the ministry to address other issues.

In April there will also be an initial easing of barriers between the banking and securities industries. Securities houses are bracing themselves for the entrance into the corporate bond market of affiliates of long-term credit banks, such as IBJ. Mr Mikio Fujii, of Nomura's fixed-income department, puts on a brave face, saying the increase of business will activate the market.

But an official at a leading US house is pessimistic. 'If the banks go for market share, as they have in the past, the market could collapse,' he says.

JP Japan, Asia P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 49 648
International Capital Markets: OSE anticipates Y240m loss for year Publication 930317FT Processed by FT 930317 By REUTER OSAKA

THE Osaka Securities Exchange (OSE) expects to report a Y240m (Dollars 2m) loss for the year ending March, after a Y1m profit a year earlier, Reuter reports from Osaka.

It will be the exchange's first loss in 10 years.

The OSE blamed slow stock futures trading following restrictions and the overall decline in stock markets.

Members' fees, including commissions to the OSE, is expected to fall to Y3.2bn in the six months ending March, from Y4.6bn in the first half of the year.

Revenue from members' fees for the coming year is projected to decline 18.7 per cent to Y6.35bn.

The exchange is also having to face the cost of developing a new trade-weighted average stock futures contract, scheduled to replace the average Nikkei 225 next year.

The development cost for the first year is Y1.33bn in the budget for the next year, which begins on April 1, the OSE said.

JP Japan, Asia P6231 Security and Commodity Exchanges FIN Annual report P6231 The Financial Times London Page 49 186
International Company News: Hurricane claims cost GIO at least Dollars 15bn Publication 930317FT Processed by FT 930317 By KEVIN BROWN and REUTER MELBOURNE

GIO Australia, the privatised Australian insurance group, yesterday blamed disappointing investment returns, hurricane claims and rationalisation costs for a disappointing net profit of ADollars 43m (USDollars 30.7m) for the six months to December.

GIO, which was floated by the New South Wales state government in July, said it made an operating profit of ADollars 73m on turnover of ADollars 990m. The group declared an initial interim dividend of 7 cents, fully-franked.

The group gave no comparative figures for last year's first half, when it was in government ownership. It re-ported a ADollars 117m net profit for the 12 months to June, up 23 per cent on the previous year.

Mr Bill Jocelyn, managing director, said losses from Hurricane Andrew, which hit Florida last year, were estimated at between USDollars 15bn and USDollars 18bn, compared with an earlier estimate of USDollars 8bn.

The result includes a loss of ADollars 7m caused by hurricane-related claims against SIO, the Victorian state insurance office, which was acquired by GIO last year. GIO said the full cost of integrating SIO during the half was ADollars 10.3m.

Jennings, the Australian homebuilder, said its bankers would convert ADollars 27m of bank debt into equity, on top of the ADollars 63m converted into a 39 per cent equity stake last August, Reuter reports from Melbourne.

Jennings, 43 per cent owned by Fletcher Challenge, the New Zealand forestry and energy group, said the bankers would receive non-voting preference shares on the additional ADollars 27m.

The company earlier reported attributable losses of ADollars 23.05m for the six months to December 31, compared with losses of ADollars 27.96m a year earlier. Net operating profits totalled ADollars 181,000, down from ADollars 3.73m. The company again paid no dividend.

GIO Australia Jennings AU Australia P6331 Fire, Marine, and Casualty Insurance P1521 Single-Family Housing Construction FIN Interim results FIN Share issues P6331 P1521 The Financial Times London Page 48 338
International Company News: Mr Sim blasts his way into the US market - Kieran Cooke charts the eventual success of a man whose dream machine was a flop Publication 930317FT Processed by FT 930317 By KIERAN COOKE

THEY call him the Bill Gates of Singapore. Mr Sim Wong Hoo started a company called Creative Technology just over 10 years ago. Computer skills, bright ideas and a lot of persistence have made Creative one of the stars of the computer scene, not just in Singapore but also in the US.

In August, Creative was listed on the Nasdaq over-the-counter exchange in the US. While not in the same league as Mr Gates's Microsoft, Mr Sim's company has taken one segment of the computer market by storm.

Creative's shares, offered at USDollars 12, shot up to nearly Dollars 40 at one stage and now trade in the upper Dollars 20s range - valuing Creative at Dollars 1.2bn. In the second half of 1992, Creative reported net income of Dollars 32.6m on revenues of Dollars 129.7m - up from Dollars 9.1m and Dollars 33.3m respectively in the corresponding period in 1991.

Creative's main product is Sound Blaster, a hardware-software package which enables computers to play music, mimic a wide range of sounds, and synthesise the human voice. First marketed in the US in late 1989, nearly 3m Sound Blasters have now been sold.

Creative is run from the seventh floor of an industrial estate block in Singapore. A local workforce of 550 puts together more than 200,000 pieces of computer equipment each month.

Mr Sim, at 37, is a local hero. Singapore is well-known for its technocrats and its managers, but entrepreneurs like Mr Sim are thin on the ground in what is a tightly-regulated and controlled business environment.

'There were times when no one wanted to know us. Getting venture capital was impossible,' he says. All that has changed. A Singapore state company has a 6.5 per cent share in Creative. Mr Sim and two friends who founded the company control 70 per cent.

Mr Sim studied electronics but has no formal computer training. After military service in Singapore, he worked as as assistant electronics engineer for a local oil company and found he enjoyed computer programming and design work.

'By the early 1980s I'd decided to set up my own business. I knew I was good at creating things but didn't really have any focus. I was also very shy, and business did not appeal to me.'

An early foray into computer teaching turned sour when a partner ran off with the money. In 1981, Creative Technology was founded, mainly to carry out various software contracts in Singapore.

'We put an ad in a local newspaper 'We are very hungry - so call us.' Our initial capital was only SDollars 10,000 (USDollars 6,000).' Design work continued. By 1984, Creative had gathered enough expertise to design what was Singapore's first home-grown computer. Mr Sim insists he did not clone products.

'We wanted to make an original. Ours was the first computer which was able to 'talk' in Chinese.' But it was not a success. Sales barely covered costs. Creative had no money for marketing.

The same thing happened to what Mr Sim calls the 'dream machine' - another computer launched in 1986 which had both Chinese and English voices, plus graphics and a sound board.

'We thought the dream machine would sell like hot cakes. It didn't. It was ahead of its time. It had so many features that it took two hours just to do the sales pitch. People would ask us, 'why does your computer talk? or why does it have Chinese?' China might have been interested but then it had no money to buy such products. Locally we had very little support. So we had to start again.'

Mr Sim and his colleagues made some radical decisions. 'We threw away the voice and languages. Music is universal. We started selling computer sound boards - music for the masses. We found we could earn the same margin on a sound board as on a complete PC.' With sounds for computer games, the Game Blaster became a popular product.

In 1988, Mr Sim left for the US. 'That's where the computer market is. I told my family that if I did not sell 20,000 sound boards in the US I would not come back.'

Penetrating the distribution system in the US is crucial. 'I would beg distributors to give me their time. I kept knocking on doors. I was willing to add in all sorts of features or modify the sound boards for them.'

Persistence paid off. At a computer exhibition in Las Vegas in late 1989, Creative was taking a trade order every three minutes. A year later, it was exporting 10,000 sound boards per month from Singapore.

Creative has several rivals, some of which, according to Mr Sim, have cloned Creative's products. Similar operations have started in Singapore. But Creative says it now has 60 per cent of a market which is growing by more than 30 per cent per year.

Creative has introduced other products, some of which it it trying to persuade PC manufacturers to incorporate into their machines, rather than selling them as accessories.

Creative has moved into multi-media computers, which combine pictures, text and high-quality sound. Creative now sells a multi-media package manufactured in conjunction with Matsushita of Japan which incorporates a Sound Blaster, a compact disc player adapted for the computer and software disks.

There is also a Video Blaster which allows a user to watch television on a computer.

Many of these products date back to Mr Sim's 1986 dream machine. That computer's functions, particularly its Chinese/English abilities, are now being resurrected with an eye to the fast-growing China market. Late last year, Creative formed a joint venture with a Beijing company. Creative's Chinese software is already being used in schools in Singapore.

Mr Sim has also moved closer to Mr Gates. Creative is now developing, along with Microsoft, various digital video software.

Creative Technology SG Singapore, Asia P3571 Electronic Computers COMP Company News Sim, WH Founder Creative Technology P3571 The Financial Times London Page 48 1034
International Company News: Improved sales, production push Santos to record Publication 930317FT Processed by FT 930317 By KEVIN BROWN SYDNEY

SANTOS, the Australian energy group, announced a 40 per cent increase in net profit to a record ADollars 163m (USDollars 116m) for the year to the end of December, on turnover up 5 per cent to ADollars 690m.

However, the group said this figure was reduced to ADollars 113m after abnormal losses of ADollars 60m, mainly reflecting a ADollars 27.5m write-down in the carrying value of US oil and gas reserves and a ADollars 23m unrealised foreign exchange loss caused by the depreciation of the Australian dollar against the US dollar.

In the previous year, Santos recorded a net loss of ADollars 111m year after abnormal losses of ADollars 223m, including a ADollars 154m write-down against unsuccessful exploration in permit areas in the Timor Sea, between Australia and Indonesia.

The group increased the final dividend by 1 cent a share to 11 cents, fully-franked, making a total of 21 cents, compared with 19 cents in the previous year. Santos shares closed 13 cents higher at ADollars 3.32 on the Australian Stock Exchange.

Santos attributed the profit improvement to higher production and sales, lower financing costs caused by falling interest rates, higher depreciation charges following increased production, and an increase in the value of oil and gas stocks.

The group said its net operating cash-flow had risen 41 per cent to ADollars 409m, which would enable it 'to continue to capitalise on strategic opportunities which emerge in the Australian and international oil and gas markets'.

In recent months, Santos has announced acquisitions totalling over ADollars 338m, including a 19.9 per cent stake in Sagasco Holdings and the purchase of the upstream oil and gas interests of Australian Gas Light.

Santos said it intended to acquire further shares in Sagasco, with the 'ultimate objective' of obtaining control, subject to a court challenge by the Trade Practices Commission, the competition regulator.

The group said it expected production to increase by 6.1 per cent to a record 36.7m barrels of oil equivalent in the current year, aided by the AGL purchase and development in the Cooper/Eromanga Basin in South Australia.

'Overall, Santos' total oil production from all regions in 1993 is forecast to be 10.7m barrels,' the group said.

Santos AU Australia P2911 Petroleum Refining P1311 Crude Petroleum and Natural Gas FIN Annual report P2911 P1311 The Financial Times London Page 48 408
International Company News: Sumitomo plans to apply to set up securities arm Publication 930317FT Processed by FT 930317 By REUTER TOKYO

SUMITOMO Trust & Banking, the leading Japanese trust bank, plans to apply to set up a subsidiary to deal in securities in the year starting on April 1, Reuter reports from Tokyo.

The bank said the subsidiary would be capitalised at about Y10bn (Dollars 84m) and have some 30 staff.

Financial reforms allowing banks and brokerages to enter each other's business through subsidiaries take effect in April.

The securities businesses that a bank's subsidiaries will be allowed to engage in do not initially include stockbroking. Two Japanese long-term credit banks - the Industrial Bank of Japan and Long-Term Credit Bank of Japan - have already announced that they would apply to the ministry of finance to set up securities subsidiaries soon after the reforms took effect.

The Norinchukin Bank, the central body for agricultural financial institutions, has also said it is considering such a subsidiary.

But Japan's big commercial banks are unlikely to apply in 1993-94, banking analysts say.

Sumitomo Trust and Banking JP Japan, Asia P6211 Security Brokers and Dealers P6021 National Commercial Banks COMP Company News P6211 P6021 The Financial Times London Page 48 207
International Company News: Coles Myer sees scope for Australian acquisitions Publication 930317FT Processed by FT 930317 By REUTER MELBOURNE

COLES MYER, Australia's largest retailer, sees scope for increasing its market share by expanding its operations and through acquisitions, Reuter reports from Melbourne.

Mr Peter Bartels, chief executive, said: 'There are at least a few percentage points to be added to our market shares in the not too distant future.' Coles Myer has 17 per cent of the Australian retail market and has about ADollars 15bn (USDollars 10.7bn) in annual sales.

He said Coles Myer had plenty of scope for closing market gaps with acquisitions and there were many opportunities to open some of its businesses in states in which it was not represented.

The decision two weeks ago to open a chain of toy superstores was the first of the niche market opportunities the group would develop. 'We see plenty of scope for new business initiatives in other areas and we are looking at a range of opportunities,' he said.

Coles Myer would concentrate its business in Australia and he did not want to make promises of offshore expansion. He said growth plans for current businesses included the opening of new stores, refurbishment of existing stores, extending trading hours, development of store brands, reducing unwanted lines and installation of electronic sales systems.

Coles Myer was examining all its operations to see whether the group should be in them and whether their performance could be improved. 'Indeed, I think it is obvious to anyone who knows the company well that a new era is well and truly under way,' Mr Bartels said. There was still work to be done after its half-year result unveiled recently, which showed a 4 per cent rise in net profit to ADollars 236.6m in the 26 weeks to January 24.

Mr Bartels said the K mart discount chain was nowhere near its potential, and he wanted to improve contributions from supermarkets and department stores.

Coles Myer AU Australia P6719 Holding Companies, NEC P5945 Hobby, Toy, and Game Shops P5311 Department Stores P5411 Grocery Stores COMP Company News P6719 P5945 P5311 P5411 The Financial Times London Page 48 361
International Company News: Digital looks to PCs to rekindle the flame - US group aims to be one of the top five global suppliers by 1995 Publication 930317FT Processed by FT 930317 By ALAN CANE

DIGITAL Equipment has seen better days. Apart from superfast microprocessors, the US group, once second only to International Business Machines, leads in hardly any area of the computing business.

Dr Juan Rada, economist, academic and, since May 1992, Digital's head of strategic alliances, explains his company's dilemma: 'Digital has succeeded as a company when it has invented the future. Its people are not good followers; it is difficult to get them enthused when they are not leading.'

The company failed to exploit the industry's two most important developments: the personal computer (PC) and the move to 'open' or industry-standard systems.

In 1992, it lost money for the successive second year; Dollars 2.8bn, or 20 per cent of revenues, proportionally far worse than International Business Machines, whose Dollars 4.9bn loss, an industry record, amounted to only 8 per cent of sales.

Can Digital rekindle the spark that took it to number two among the world's information technology suppliers? Dr Rada believes that Digital's mistakes have presented it with a clean sheet in three important areas: management, organisation and technology.

Management: Mr Robert Palmer took over as chairman from Digital's founder, Mr Kenneth Olsen, last year. He has since named a new senior management team, appointing several top managers from outside the company.

Organisation: the company has been restructured into nine business units, each responsible for its financial performance.

Technology: Digital is pinning its hopes on its Alpha microprocesssor chip, the first to process information 64 bits at a time.

Much will depend on whether Digital can catch industry leaders, such as IBM and Compaq in personal computers. Customers spend more on PCs than on any other computer hardware, but net profit margins are small. Success in PCs means combining high volumes with low prices and excellent distribution.

Digital is starting in PCs with a more or less clean sheet. It failed first time round because senior management did not take PCs seriously; now Mr Palmer has set the company the goal of becoming one of the top five global suppliers by 1995. The aim is to earn about 20 per cent of revenues - perhaps Dollars 2bn to Dollars 3bn - from PCs by that date.

To implement the strategy, Mr Palmer appointed Mr Enrico Pesatori as head of Digital's PC business unit. Mr Pesatori, 52, spent 21 years with Olivetti, Europe's largest PC manufacturer, before two years as chief executive of Zenith Data Systems, the PC arm of Groupe Bull of France.

Digital's PC strategy is a rag-bag of solutions. PCs for Europe are made by Olivetti; Intel builds machines for the US. Notebook PCs and some workstations are supplied by other manufacturers. In addition, Digital designs and manufactures its own PCs.

In spite of this haphazard approach, according to Mr Pesatori, Digital has moved from 22nd to ninth among global PC suppliers in the past 12 months. 'Without a real strategy, but with some sound products, Digital has been able to achieve impressive results,' he says.

His first job is to create a coherent PC strategy: 'My goal is to have taken all the strategic decisions before the beginning of our fiscal year, in July. Implementing the strategy will take a further year.'

That will involve the creation of a single product family, which will mean changes in the arrangements with Olivetti and with Intel. Mr Pesatori insists the relationships will be improved rather than severed: 'We have to move to another level of co-operation to meet what is required today,' he says. He also intends to appoint professional PC managers to oversee the all-important distribution strategy.

It could be argued that Digital has left it too late in PCs, but Mr Pesatori argues that the company's legacy gives it significant advantages.

First, there are its existing customers, which include most of the world's blue-chip companies. Less than 5 per cent use Digital PCs; by comparison, 48 per cent of IBM customers have at least one IBM PC. If Digital's penetration rate were raised to only 20 per cent, it would make a considerable difference.

That large customer base also makes the company attractive to dealers who would see a sales agreement with Digital as a passport to lucrative new business.

Second, the Digital brand name. Mr Pesatori accepts that names like IBM and Compaq can no longer command a premium, but notes that if products are priced sensibly there is advantage in owning a brand synonymous with quality.

Third, the company is an acknowledged technology leader; its Alpha chip will eventually be used in its PCs, giving customers a choice of 64-bit or 32-bit technology.

Digital faces an uphill battle, but Dr Rada believes the industry's turbulent state will be an advantage. He quotes a Spanish proverb: 'When the river is turbulent, the fishermen are the winners.'

Digital Equipment United States of America P3571 Electronic computers P3674 Semiconductors & Related Devices P3571 P3674 The Financial Times London Page 46 855
International Company News: CS Holding confirms Volksbank takeover Publication 930317FT Processed by FT 930317 By IAN RODGER ZURICH

CS HOLDING, parent company of the financial group built around Credit Suisse, has confirmed it will go ahead with its SFr1.6bn (Dollars 1.05bn) agreed takeover of Swiss Volksbank.

CS said that by the time of the expiry of its offer yesterday, 93 per cent of Volksbank shares had been tendered.

The takeover will enable CS to surpass Union Bank of Switzerland to become Switzerland's largest financial group in terms of assets.

The all-share offer, announced on January 6, has advanced smoothly. Volksbank, which tumbled into a SFr68m loss last year, had first to win shareholders' approval to convert itself from a co-operative into a joint stock company. In the event, the enabling resolution was passed without a murmur of dissent at an extraordinary general meeting last week.

Under Swiss law, the offer, on the basis of three new CS registered shares for every 10 Volksbank registered shares, must be extended for 10 banking days in order to enable the remaining Volksbank shareholders to take advantage of it.

CS said the new shares would be issued in mid-April.

CS Holding Swiss Volksbank CH Switzerland, West Europe P6712 Bank Holding Companies P6021 National Commercial Banks COMP Acquisition P6712 P6021 The Financial Times London Page 46 221
International Company News: Wang creditors back plan for reorganisation Publication 930317FT Processed by FT 930317 By LOUISE KEHOE SAN FRANCISCO

WANG Laboratories, the US office computer systems company, yesterday filed a wide-ranging reorganisation plan aimed at enabling the company to emerge from Chapter 11 bankruptcy protection.

The plan, jointly sponsored by a committee representing unsecured creditors, would transfer ownership of the company to creditors through an issue of new stock. It also calls for substantial reductions in operations, with the loss of 3,300 jobs.

Secured and priority creditors would be paid in full, or as agreed by the parties. Unsecured creditors would be issued shares in the reorganised company and warrants would be issued to current shareholders. The plan had been endorsed by representatives of equity holders, Wang said.

Wang, an early leader in office computer systems, failed to keep pace with changes in the industry. It filed for bankruptcy protection last August.

'We have truly invented a new Wang,' said Mr Joseph Tucci Wang, president and chief executive.

Wang would emerge from Chapter 11 free of a substantial portion of the structural burden and debt that had impeded the company's efforts to restructure and regain profitability, the company said.

Wang plans to close its manufacturing operations and focus on software and services. Corporate operations would be streamlined and the company would 'dramatically reduce its infrastructure,' Wang said.

'This plan allows Wang to capitalise upon its leadership in integrated imaging and office software and network integration and support services,' said Mr C. Hall Swaim, counsel to the creditor's committee.

The 'new Wang' does not intend to develop or manufacture open systems computers. Instead, it would resell computers manufactured by other companies - including International Business Machines, which formed an alliance with Wang two years ago, and Hewlett-Packard, which reached a joint marketing and development agreement with Wang two weeks ago.

Wang officials said the company expected to return to profitability in fiscal year 1994. For the current fiscal year, it anticipated revenues of around Dollars 1.25bn to Dollars 1.3bn, declining to about Dollars 1bn in 1994.

The job losses involved are higher than expected, however. Wang had more than 13,000 employees before it filed for protection, at which time it said it hoped to preserve 8,000 jobs. Yesterday, however, it announced it would reduce its workforce from 9,300 to 6,000.

Wang Laboratories US United States of America P3571 Electronic Computers COMP Company News P3571 The Financial Times London Page 46 410
International Company News: Mellon Bank eyes disposals Publication 930317FT Processed by FT 930317 By AP-DJ

MELLON Bank of the US is exploring the sale of three of its information services businesses, AP-DJ reports. The operations provide data processing and management information services for more than 200 banks, trust companies, thrift institutions and mortgage companies in the US.

Together, these businesses generated 1992 revenues of about Dollars 94m and employ about 940 people.

Mellon Bank US United States of America P6021 National Commercial Banks P7374 Data Processing and Preparation COMP Disposals P6021 P7374 The Financial Times London Page 46 98
International Company News: SKF to improve delivery times Publication 930317FT Processed by FT 930317 By CHRISTOPHER BROWN-HUMES

SKF, the world's leading roller bearing manufacturer, is restructuring its European distribution network to increase stock-handling efficiency and improve delivery times, writes Christopher Brown-Humes.

Under a three-year programme, it will cut the number of its European inventory points from 24 to five and build a new central distribution centre for the whole of Europe at Tongeren, in Belgium.

The company says the move will save at least SKr250m (Dollars 31.82m) a year.

SKF Tools SE Sweden, West Europe P3562 Ball and Roller Bearings COMP Company News P3562 The Financial Times London Page 45 110
International Company News: Ambroveneto raises profits 31% to L171bn Publication 930317FT Processed by FT 930317 By HAIG SIMONIAN

BANCO AMBROSIANO Veneto (Ambroveneto), Italy's biggest private sector bank, raised parent bank net profits by 31 per cent to L171.4bn (Dollars 106m) last year, in spite of the recession and the need for write-downs on securities holdings.

The improvement restores the upward trend in earnings which had been upset by the need for substantial write-downs on the book value of two subsidiaries in 1991. However, the dividend remains unchanged at L150 for ordinary shares and L170 for savings shares.

Gross operating income, net of interest on overdue accounts, rose 17.4 per cent to L710bn due to an improved interest margin and a 'significant' contribution from fee income.

Ambroveneto set aside L253bn for loan loss provisions last year, compared with L180bn in 1991. Write-downs on securities and investments amounted to L71bn, against L207bn the previous year, when L170bn was set aside for the newly-acquired Citibank operation.

Deposits rose by 21 per cent to L21,367bn and lending by 21 per cent to L18,836bn.

Banco Ambrosiano Veneto IT Italy, EC P602 Commercial Banks FIN Annual report P602 The Financial Times London Page 45 198
International Company News: Olivetti shares slide as trading starts again Publication 930317FT Processed by FT 930317 By HAIG SIMONIAN MILAN

SHARES in Olivetti, the Italian computers group, dropped by 17.1 per cent yesterday in response to Monday's announcement of a L903bn capital increase and losses of about L650bn (Dollars 404m) for 1992.

Olivetti's ordinary stock slid to L1,825 after the suspension in trading, imposed on Monday morning, was lifted, against L2,202 at Friday's close. The sharp fall reflected brokers' reaction to the highly dilutive rights issue and the poor outlook for the company in the short term.

Mr Corrado Passera, joint managing director, described the fall as 'an automatic event' in the case of a deeply-discounted rights issue. He said the true measure of the transaction's success would be the price at which the shares eventually settle.

Shareholders will be offered six new ordinary shares, priced at a nominal L1,000 each, for every four shares, of whatever category, currently held. Alternatively, they may subscribe to at least half their rights in the form of new shares and the remainder in new six-year convertible bonds, which will be interchangeable with the new shares and pay interest of between 6 per cent and 8 per cent.

The deal received a hostile reaction from most brokers, who criticised the deep discount and dilution. 'It's not often you get a rights issue where shareholders are offered more shares than they already have,' said one.

The transaction has been accompanied by preliminary results from CIR, the listed holding company controlled by Mr Carlo De Benedetti, which in turn controls Olivetti, and by Mr De Benedetti's Cofide holding company.

CIR made a preliminary loss of L540bn in 1992, against a net profit of L49bn the previous year. Around L450bn of the loss stems from extraordinary factors linked to the difficulties at Olivetti and the need for one-off provisions at Cerus, the French holding company controlled by CIR.

The special provisions have been chiefly triggered by credit problems at Banque Dumenil Leble in France, particularly as regards lending to the depressed property sector. At parent company level, CIR's loss rose to L680bn from L469bn in 1991.

CIR's net debt surged to about L440bn from L41bn due to the effects of its losses, the increased lira value of foreign currency borrowing, and changes in the items consolidated in the group's accounts.

The group said almost all its subsidiaries, which include Valeo, the French car components concern, the Italian Sasib engineering group and the Espresso/Repubblica publisher, were expected to report improved results for 1992.

Separately, Cofide said it expected to make a net loss of about L290bn in 1992, against net earnings of L41bn the previous year. The company is to make a L112.7bn rights issue of new ordinary shares, priced at L1,000 each.

Olivetti and Cie IT Italy, EC P357 Computer and Office Equipment COMP Company News P357 The Financial Times London Page 45 486
International Company News: MoDo stops payout after tumbling into loss of SKr1.7bn Publication 930317FT Processed by FT 930317 By CHRISTOPHER BROWN-HUMES STOCKHOLM

MODO, the Swedish forestry group, has cancelled its dividend after swinging to a SKr1.7bn (Dollars 216m) loss in 1992 from a SKr221m profit a year earlier.

The result, which was worse than expected, was hit by SKr700m in foreign exchange losses and start-up costs for a new French mill, but highly competitive market conditions were the main reason for the decline.

Excess of supply for most forest industry products continued during 1992, squeezing prices and capacity utilisation, despite higher demand, said Mr Bernt Lof, the group chief executive.

Losses doubled in the final four months of the year from SKr811m at the eight-month stage, with the weakening of the krona from November coming too late to benefit the group. In 1991, the group paid a SKr7 dividend, which was down from SKr13 in 1990.

Sales fell to SKr15.7bn from SKr17.4bn, and the group saw an operating loss of SKr135m after a SKr1.06bn profit in 1991. This was aggravated by higher financial costs of SKr1.3bn, against SKr841m.

The main lossmaker was MoDo Paper, where operating losses deepened to SKr696m from SKr194m, but profits sank sharply at Holmen Paper to SKr40m from SKr496m.

Mr Lof said the group's rationalisation programme, which resulted in 950 job losses, had saved the company more than SKr500m during the year, and he predicted a further benefit this year.

The group said it expected its capacity utilisation, which fell to 85 per cent in 1992, to rise in 1993, helped by a better supply and demand balance and a successive rise in prices. It also said it would benefit from lower wood prices, a reduced energy tax, and the devaluation of the krona.

MoDo Paper SE Sweden, West Europe P26 Paper and Allied Products FIN Annual report P26 The Financial Times London Page 45 319
International Company News: IRI plans more share deals to cut huge debts Publication 930317FT Processed by FT 930317 By HAIG SIMONIAN MILAN

SENIOR executives at IRI, Italy's biggest state holding company, facing consolidated debts of over L70,000bn (Dollars 43.61bn), are determined to push through further complex share swaps among subsidiaries, despite severe criticism from the stock market and investors.

The attacks follow weekend leaks that IRI plans to cede to its Stet telecommunications arm for three years the dividend on its 57 per cent stake in the ordinary shares of Banca Commerciale Italiana, the big bank which is a future privatisation candidate.

The transaction will allow Stet, which is highly profitable, to offset tax credits on the dividends against its tax bill and provide a net return of 23 per cent. Meanwhile, IRI, which is facing crippling losses following difficulties at many of its industrial operations, will receive a L340bn payment in return.

Although shifting tax credits within a group to lower its overall tax burden is commonplace in Italy, IRI's plan has produced a barrage of criticism. The attacks on the deal range from claims that it will block BCI's privatisation to suggestions that corporate tax avoidance is immoral.

'I don't know what they're complaining about', said one banker closely associated with the transaction. 'Half of corporate Italy does this; it's the 22nd deal of the kind I've done'.

Financial engineering of dividend payments also reflects the six-year period Italian companies have to wait before they receive tax credits from the government. When eventually paid, the money attracts interest at far below market rates.

IRI has about L3,700bn in tax credits outstanding, implying that it could undertake a large number of similar transactions. However, bankers point out that not all the credits are suitable, and the overall amount that could be in the short term is about L1,000bn, of which L340bn will come from the Stet deal.

IRI has a number of cash-rich subsidiaries which could be used for similar exercises. One obvious candidate is Sirti, the network engineering arm of Stet, which has a cash pool of about L1,000bn.

Istituto per la Ricostruzione Industriale IT Italy, EC P6719 Holding Companies, NEC COMP Company News P6719 The Financial Times London Page 45 373
UK Company News: David Lloyd well oversubscribed Publication 930317FT Processed by FT 930317

The public offering of 9.84m shares in David Lloyd Leisure, the tennis and fitness chain run by the former Davis Cup player, was almost seven times over-subscribed.

The shares were priced at 150p each. Robert Fleming, the merchant bank which handled the floatation, said it received applications for almost 67.9m shares.

Investors who applied for 200 shares will receive a full allotment. Larger applications will receive a proportion ranging from 50 per cent for applications covering 500 shares to 10 per cent for applications for between 20,000 and 70,000 shares.

Dealings in the shares are due to begin on Friday.

David Lloyd Leisure GB United Kingdom, EC P7991 Physical Fitness Facilities P7997 Membership Sports and Recreation Clubs FIN Share issues P7991 P7997 The Financial Times London Page 44 141
UK Company News: Alliance Trust shows improvement Publication 930317FT Processed by FT 930317

Alliance Trust, which maintains a substantial overseas equity exposure, reported net asset value per share up from Pounds 15.39 to Pounds 17.79 in the year ended January 31.

After-tax revenue rose from Pounds 22m to Pounds 23.1m, giving earnings per share of 45.7p (43.5p).

The final dividend is increased to 31p for a total of 45p (43p).

Alliance Trust P67 Holding & other Investment Offices FIN Annual Report P67 The Financial Times London Page 44 87
UK Company News: Bolton declines to Pounds 21,000 Publication 930317FT Processed by FT 930317

Bolton Group, the property investor, suffered a fall in profits from Pounds 51,000 to Pounds 21,000 over the six months to October 31.

The Langho Nursing Centre, acquired during the period, incurred a loss of Pounds 157,000, but directors believed the project should be profitable in the next few months.

Turnover totalled Pounds 915,000 (Pounds 918,000). Earnings per share emerged at 0.23p (0.56p).

Bolton Group P65 Real Estate P67 Holding and Other Investment Offices P65 P67 The Financial Times London Page 44 94
UK Company News: Courtaulds sells Wrightcel stake Publication 930317FT Processed by FT 930317

Courtaulds has sold its 40 per cent interest in Wrightcel to Gadsden Rheem, the Melbourne-based packaging subsidiary of SA Brewing Holdings.

Wrightcel was set up in December 1990 as a result of a management buy-out of Courtaulds Packaging Australia.

Former CPA management holds 20 per cent and the remaining 40 per cent is held by AIDC. Wrightcel's turnover in the year ended March 31 1992 was ADollars 55.4m (Pounds 27.1m).

Courtaulds Wrighteel Gadsden Rheem GB United Kingdom, EC AU Australia P6719 Holding Companies, NEC P2652 Setup Paperboard Boxes COMP Disposals P6719 P2652 The Financial Times London Page 44 111
UK Company News: SBC to raise Dollars 50m for fund Publication 930317FT Processed by FT 930317

Swiss Bank Corporation is attempting to raise Dollars 50m (Pounds 35.2m) for a Jersey-based, but London-listed closed-end fund.

The Environmental Investment Company will buy shares in companies which are expected to benefit from increased spending on the environment.

The minimum investment in the fund is Dollars 10,000 in units of Dollars 50, comprising five shares with a warrant attached.

The fund has a 10 year life and the management fee is 1.25 per cent of net assets plus 3.5 per cent of any increase in net asset value each year.

Swiss Bank Corp Environmental Investment GB United Kingdom, EC CH Switzerland, West Europe P6021 National Commercial Banks P6726 Investment Offices, NEC COMP Acquisition P6021 P6726 The Financial Times London Page 44 137
UK Company News: Assoc Nursing plans Pounds 1.5m placing Publication 930317FT Processed by FT 930317

Associated Nursing Services, the nursing homes specialist, is placing 800,000 new ordinary shares at 195p each to raise Pounds 1.5m.

ANS is considering making a cash offer for Broadwater Homes for which it will use the proceeds.

ANS already owns 20.86 per cent of the Broadwater equity and manages its two nursing homes.

Associated Nursing Services Broadwater Homes GB United Kingdom, EC P8051 Skilled Nursing Care Facilities FIN Share issues COMP Acquisition P8051 The Financial Times London Page 44 94
UK Company News: Cala deeper in red but optimistic Publication 930317FT Processed by FT 930317

INCREASED LOSSES were incurred by Cala, the housebuilding and commercial property developer, for the half year to December 31.

At the pre-tax level, the loss jumped from Pounds 1.57m to Pounds 2.85m on turnover Pounds 6.8m lower at Pounds 20.6m.

However, Mr Geoff Ball, chairman, took an optimistic view of the remainder of the year.

He said that following a buoyant start to the second half, the closing six months will produce near to 70 per cent of full year sales.

Losses per share for the first six months amounted to 5.39p (2.98p).

An interim dividend of 0.75p (1.15p) is declared but a maintained total of 2.3p is forecast.

Cala GB United Kingdom, EC P1521 Single-Family Housing Construction P1542 Nonresidential Construction, NEC FIN Interim results P1521 P1542 The Financial Times London Page 44 148
UK Company News: Inchcape makes Pounds 19.2m Swiss buy Publication 930317FT Processed by FT 930317 By ANDREW BOLGER

INCHCAPE, the motor and business services group, has acquired control of Switzerland's exclusive distributor of Daihatsu, Maserati and Lotus vehicles, in a Pounds 19.2m deal.

It has bought a 90 per cent stake in Reverberi for Pounds 9.4m and will also assume responsibility for the private company's borrowings of Pounds 9.8m.

Reverberi, which will be managed by TKM, Inchcape's motors subsidiary, is based near Sion and has represented Daihatsu in Switzerland since 1976. Last year it sold 1,000 Daihatsus, and about 40 Maserati and Lotus vehicles.

Mr Reg Heath, chief executive of TKM and an Inchcape director, said this was the eighth new import and distribution business Inchcape had acquired since it bought TKM for Pounds 382m a year ago.

He said: 'Inchcape is already the exclusive importer and distributor of Daihatsu vehicles in the UK, Belgium and the Irish Republic, and this acquisition marks a significant strengthening of our relationship with this manufacturer.'

Inchcape Reverberi TKM (UK) GB United Kingdom, EC P5511 New and Used Car Dealers P5012 Automobiles and Other Motor Vehicles COMP Acquisition P5511 P5012 The Financial Times London Page 44 202
UK Company News: Lionheart falls into Pounds 870,000 loss Publication 930317FT Processed by FT 930317 By IAN HAMILTON FAZEY, Northern Correspondent

LIONHEART, the Cheshire-based paint brushes and home improvements group which returned to the dividend list only last year, yesterday reported a pre-tax loss of Pounds 870,000 for 1992, and passed its final distribution. The loss compared with a profit of Pounds 2.39m.

Mr Paul Lever, executive chairman, blamed recession for depressing sales volumes by 19 per cent and forcing price cuts that reduced margins by 3 percentage points. After shedding a fifth of the workforce to save Pounds 2m, he said Lionheart was now back in profit.

All 1991 figures have been restated under accounting standard FRS 3.

Turnover was up nearly 23 per cent at Pounds 43.6m (Pounds 35.5m) but cost of sales rose 25 per cent to Pounds 27.5m (Pounds 21.9m) and net operating expenses by 54 per cent to Pounds 15.9m (Pounds 10.4m).

This reduced operating profit to only Pounds 207,000 against a previous Pounds 3.21m. Exceptional debits, made up of abortive acquisition costs and a loss on disposal of discontinued operations, were Pounds 372,000. Interest charges rose from Pounds 543,000 to Pounds 705,000.

After two years of reconstruction under Mr Lever, Lionheart returned to the dividend list with a 0.3p final a year ago. It then paid an interim dividend of 0.2p. Mr Lever said: 'After consultations in the City we decided it was better to be prudent and preserve resources. We could have paid a 0.1p final and still have headroom, but with the uncertainty about the economy we felt it better to be careful.'

The company, in which Newell, the US paint brush manufacturer, increased its stake from 13.4 per cent to 20 per cent during the year, has reduced gearing from 37 per cent to 12.7 per cent by the sale and leaseback of its Wellingborough factory.

Mr Lever said profitability returned in the fourth quarter, although an expected Christmas pick-up in sales of shower curtains and bathroom accessories had not materialised.

Lionheart GB United Kingdom, EC P3991 Brooms and Brushes FIN Annual report P3991 The Financial Times London Page 44 359
UK Company News: Hall hit by rationalisation Publication 930317FT Processed by FT 930317 By ANDREW BAXTER

HALL Engineering (Holdings), the steel stockholding, construction products and automotive engineering group, yesterday announced a Pounds 21m 'breakthrough' order in Gerany and virtually unchanged profits for 1992, before exceptionals, of Pounds 5.6m.

However, a Pounds 1.84m exceptional item for rationalisation at Hall & Pickles and British Reinforced Concrete Engineering left the pre-tax line at Pounds 3.73m (Pounds 5.07m). Group turnover fell 8 per cent to Pounds 135.7m.

Mr Richard Hall, chairman, said conditions remained depressed, causing worsening results from steel reinforcement and metal stockholding where profits fell by Pounds 800,000 and Pounds 1m respectively.

Profits from associated companies improved from Pounds 5m to Pounds 6.8m. In particular, Mr Hall said the 50 per cent-owned Singapore reinforcing steel, roofing and cladding businesses were 'going like a rocket.'

Engineering profits dropped by Pounds 1.3m, with fewer automation contracts at Stadco being completed. But Mr Hall said he was delighted to announce that Stadco's automation division had won a Pounds 21m contract from Audi in Germany.

The order is a record for Stadco. It furthers its ambitions to move to 'a slightly higher rung' in the automotive manufacturing equipment sector according to Mr Brian Hinkins, group managing director. The continuing predominance of profit from overseas led to a further build-up of ACT in the UK - and the ACT write-off of Pounds 1.8m is higher than previously expected. The effective tax rate last year was 74 per cent, but Hall estimates the rate this year will be 37.5 per cent.

A total tax charge of Pounds 2.76m, and a Pounds 1.37m extraordinary charge due mainly to the decision to close steelmaking operations in South Africa, produced a net loss for the year of Pounds 408,000 (Pounds 3.56m).

Earnings per share dipped from 11.34p to 3.05p, while the dividend is maintained at 8.64p with a same-again final of 5.34p.

Mr Hall said the current year has had a much better start than last year. Increases in steel prices, rationalisation at Hall and the current round of capacity cuts in the reinforcement industry left him 'more optimistic than I have been for some time for the future performance of the group.'

Hall Engineering Holdings Stadco GB United Kingdom, EC P3441 Fabricated Structural Metal P3592 Carburetors, Pistons, Rings, Valves P3312 Blast Furnaces and Steel Mills MKTS Contracts FIN Annual report P3441 P3592 P3312 The Financial Times London Page 44 409
UK Company News: Triplex Lloyd rights Publication 930317FT Processed by FT 930317

Triplex Lloyd rights issue has been taken up in respect of 12.2m new shares, representing 95.1 per cent of offer.

Triplex Lloyd GB United Kingdom, EC P33 Primary Metal Industries P3493 Steel Springs, Ex Wire P6719 Holding Companies, NEC FIN Share issues P33 P3493 P6719 The Financial Times London Page 43 63
UK Company News: Rise at Law Debenture Publication 930317FT Processed by FT 930317

LAW Debenture Corporation increased net asset value by 21 per cent to 514p at the end of 1992, against 426.3p a year earlier.

After-tax revenue rose by 6.3 per cent from Pounds 4.3m to Pounds 4.57m in the year, representing earnings per share of 20.07p (18.92p). The final dividend is raised to 12p making a total of 18.25p (17.5p).

A geographical split of the portfolio shows UK investments lower at 63.8 per cent (66.3 per cent), while elsewhere there were increases in the US to 23.8 per cent (23 per cent); Europe 7 per cent (6 per cent); Japan and Far East 3.9 per cent (3.5 per cent) and Australia 1.5 per cent (1.2 per cent).

Law Debenture Corp GB United Kingdom, EC P6733 Trusts, NEC FIN Annual report P6733 The Financial Times London Page 43 149
UK Company News: Searching for an early route out of limbo - Attempts to realise the value of Vestel for PPI's creditors Publication 930317FT Processed by FT 930317 By JOHN MURRAY BROWN

MR Tahsin Karan, the long suffering chairman and chief executive of Vestel Elektronik, Polly Peck International's Istanbul-based consumer electronics subsidiary, is to step down at tomorrow's annual meeting.

His departure is a further blow to creditors and administrators of the failed British fruit and electronics group built up by Mr Asil Nadir. The eventual sale of Vestel is one of the few hopes the 23,000 creditors have of recouping even a small fraction of their money.

Already in the throes of a corporate restructuring, and facing an anti-dumping investigation by the European Community, Vestel is losing the marketing brains and man who, more than any other, was responsible for Vestel's emergence as an important force in Turkish electronics.

The search for a replacement has been painstakingly slow. 'The company has been in a sort of limbo,' complains Mr Karan, describing the 27 months since the administrators were appointed. 'Without solid ownership, it has been impossible to take aggressive positions.'

For all the tensions, the administrator can have few grumbles about Vestel's management, which has provided a welcome degree of co-operation, something which cannot be said of PPI's other Turkish subsidiaries.

Vestel is considered PPI's strongest Turkish asset. Started in 1985 the company quickly established itself as Turkey's leading exporter of colour televisions, while carving out a respectable slice of the local market. Vestel successfully floated a minority stake on the Istanbul exchange in June 1990. Its present market capitalisation is Dollars 53m (Pounds 37.3m).

Tomorrow it is expected to report 1992 pre-tax profits of TL161bn (Pounds 13.4m) on sales of about TL2,150bn against TL74bn on TL1,400bn a year earlier and TL167bn on TL851bn in 1990.

Vestel's strategy has been to sell its own branded televisions, audio products and other brown and white goods under marketing deals in Spain and Portugal and most recently a joint manufacturing venture in Romania. The bulk of the export production, though, is made to the design and specification of a foreign purchaser, under original equipment manufacturing agreements.

In 1992, Vestel generated Dollars 70m in export sales, with brown goods accounting for 80 per cent. But export prospects to EC markets are clouded by the anti-dumping inquiry.

Under Turkey's Association Agreement with the EC, Turkish electronics can enter the community duty free. The investigation involves imports of colour televisions which community officials contend rely on cheap components from the Far East and therefore should incur extra duties.

Turkey is now the largest supplier of medium size televisions to the EC. Vestel relies on television shipments for 80 per cent of its export revenues. If the charges stick, Mr Karan anticipates Vestel's exports to the community could fall by as much as a third.

The export uncertainty and prospect of more import competition in Turkey have not made it any easier for the administrators to find a buyer for Vestel.

The first option of floating the company on the Istanbul exchange was quickly ruled out. 'It was probably always going to be difficult to float any company associated with PPI,' said an Istanbul banker.

A quest was then launched for a minority partner to help Vestel expand its product range in the European market. If the company was to attract a foreign buyer, the administrators argued, it was also necessary to split the business. Unlike Europe and the US, Turkey's electronics groups are still engaged in both white and brown goods.

In June, the company sold 25 per cent of its white goods activity to Merloni Elettrodomestici, the Italian group. The Dollars 8.5m proceeds bolstered the balance sheet rather than being remitted to PPI in London.

The link up had an obvious logic, given that in its home market Vestel was already distributing the Philco range, 50 per cent owned by Merloni. In turn Merloni has the licence for the Philco brand name in Europe, providing what Mr Karan sees as a 'guarantee for our exports'.

Merloni has also provided a strategic platform to export household and white goods to north Africa, and the central Asian states.

Capacity is to double at the refrigerator line, where half of production is for export. Merloni is expected to take up its option to become the 51 per cent majority shareholder.

The future for the brown goods arm, Vestel's main operation, remains unresolved. The administrators are in negotiations with a variety of interested parties, including Singer, the US electronics concern.

Paradoxically, the decision to demerge the white goods business means any buyer of the brown goods operation may find it more difficult to maintain share in the domestic market, where traditionally Turkish retailers like to handle the whole range of consumer electronic goods.

Vestel Elektronik Polly Peck International TR Turkey, Middle East P363 Household Appliances COMP Company News P363 The Financial Times London Page 43 827
UK Company News in Brief: Pizza Express Publication 930317FT Processed by FT 930317

Recent rights issue of 10.26m new shares taken up as to 9.49m shares (92.5 per cent). Mr David Blechner, a director, took up his rights and is now interested in 3.17m shares (6 per cent).

Pizza Express GB United Kingdom, EC P5812 Eating Places FIN Share issues P5812 The Financial Times London Page 43 67
UK Company News in Brief: No Probe Publication 930317FT Processed by FT 930317

The following proposals are not to be referred to the Monopolies and Mergers Commission: the acquisition by McLeod Russel Holdings of Wheway and the acquisition by Calor Group of certain assets of BP Oil comprising part of its liquid petroleum gas business.

Michael Russell Holdings Wheway Calor Group BP Oil GB United Kingdom, EC P6719 Holding Companies, NEC P2911 Petroleum Refining P35 Industrial Machinery and Equipment COMP Acquisition P6719 P2911 P35 The Financial Times London Page 43 90
UK Company News in Brief: Falcon Mines Publication 930317FT Processed by FT 930317

Shareholders of the company, which is in liquidation, have resolved to wind up Falcon plc and, accordingly, the scheme of reconstruction approved by shareholders at a separate meeting has been carried into effect.

Falcon Mines GB United Kingdom, EC P10 Metal Mining COMP Company News P10 The Financial Times London Page 43 65
UK Company News in Brief: Crown Business Publication 930317FT Processed by FT 930317

CROWN BUSINESS Communications: Heads of agreement have been signed for a management buy-out of the company. The deal is backed and financed by the Bank of Scotland.

Crown Business Communications GB United Kingdom, EC P7313 Radio, Television, Publisher Representatives COMP Buy-out P7313 The Financial Times London Page 43 61
UK Company News in Brief: Bellway Publication 930317FT Processed by FT 930317

Recent Pounds 33.6m rights taken up in respect of 10.4m shares, representing 96.1 per cent of issue.

Bellway GB United Kingdom, EC P6552 Subdividers and Developers, Ex Cemeteries FIN Share issues P6552 The Financial Times London Page 43 50
UK Company News: Johnson caution with slight fall to Pounds 15.8m Publication 930317FT Processed by FT 930317 By PEGGY HOLLINGER

JOHNSON Group Cleaners, the UK's largest dry cleaning company, yesterday offered cold comfort to green shoot economists, saying it had seen no signs of recovery either here or in the US.

'We are being very cautious until we see some tangible sign of uplift,' said Mr Terry Greer, chairman. And just when that will happen, he said, 'well, your guess is as good as mine.'

Mr Greer said Johnson had been adversely affected by the exceptionally cold weather in the US, as well as by the continued severity of recession. 'We are reading about signs of recovery there, but we haven't seen any,' he said.

The statements came as the group reported a slight decline in pre-tax profits from Pounds 16m to Pounds 15.8m for the 12 months to December 26, on sales 2 per cent lower at Pounds 150.8m.

The decline at the pre-tax level was due to a Pounds 148,000 deficit on property, against a profit of Pounds 130,000 last time, following a Pounds 638,000 write-down on the value of a factory.

Excluding property, Johnson reported a slight increase from Pounds 15.9m to Pounds 16m.

The most significant factor affecting profits was a Pounds 1.4m decline in interest payments to Pounds 1.6m. Gearing fell from 39 per cent to 23 per cent.

The strongest performance came from the group's growing workwear rental business, supplying uniforms and sundries to small and medium-sized businesses.

Operating profits in this division were Pounds 270,000 lower at Pounds 8.7m, on sales 7 per cent down to Pounds 41m. The decline in turnover reflected the sale of a business in the US.

In the UK, where Johnson claims some 10 per cent of the workwear market, operating profits and sales were slightly ahead, Mr Greer said.

The dry cleaning market on both side of the Atlantic continued to be depressed. Margins and sales fell, with operating profit Pounds 1m lower at Pounds 8.8m on turnover down from Pounds 110.3m to Pounds 109.8m.

Losses in Johnson's US franchise operation had increased from last year's Dollars 250,000 (Pounds 176,000), in spite of efforts to control costs. Mr Greer said there was little more that could be done, without economic recovery.

The final dividend is maintained for the third consecutive year at 18.7p, for an unchanged total of 25.7p.

Fully diluted earnings per share rose from 48.7p to 49.12p.

COMMENT

Johnson's larger competitors might take heed of the company's softly softly approach to workwear rental. By focusing on smaller to medium-sized customers, and avoiding the volatile catering and leisure sectors, Johnson has managed to keep its bucket of business topped up and at margins (reportedly as high as 20 per cent) which are only dreamed of by others. Now Johnson intends to tackle larger customers on a national basis - although in its usual cautious manner, says Mr Greer - while its rivals are moving down the scale. Although Mr Greer traditionally downplays the outlook, analysts are more enthusiastic and count on some recovery to begin this year. Forecasts are for about Pounds 17.5m pre-tax, excluding property gains, for a prospective p/e of about 16 times. Although this seems to be up with events in the short-term, Johnson's mid-cycle prospects and solid record might lead some to tuck this away for the upturn.

Johnson Group Cleaners GB United Kingdom, EC P7212 Garment Pressing and Cleaners' Agents P7216 Drycleaning Plants, Ex Rug P7219 Laundry and Garment Services, NEC FIN Annual report CMMT Comment & Analysis P7212 P7216 P7219 The Financial Times London Page 43 606
UK Company News: BBA gets Pounds 58m for stake Publication 930317FT Processed by FT 930317 By KEVIN BROWN and JANE FULLER

BBA, the engineering group, yesterday sold its 57 per cent stake in Pacific BBA, the Australian industrial and automotive manufacturer, for ADollars 122.5m (Pounds 58m). The shares were placed with institutions.

The sale reduces BBA's net debt, which stood at Pounds 227.5m in December, bringing down gearing from 61 per cent to 44 per cent on a year-end basis. Mr Peter Clappison, finance director, said this was about the group's 'comfort level' for gearing.

BBA's share price gained 7p to close at 171p.

The group said it was concentrating on developing its core operations in Europe and North America. It has a policy of disposing of non-core activities 'depending on their performance and the interest among potential buyers'.

The diversified group, which has automotive, industrial and aviation divisions, defines a core business as having a strong international market share, technological leadership and where barriers are high to the entry of competitors.

In terms of acquisition priorities, Mr Clappison said the most likely area would be the industrial division. This was the biggest contributor to the group's Pounds 47.4m pre-tax profit, on sales of Pounds 1.32bn, announced last week.

Pacific BBA had been operating as a separate entity within the group, particularly since it gained a listing on the Australian stock exchange in November 1989.

Mr Peter Cottrell, Pacific BBA chairman, said it was 'pleasing to be able to reverse the trend of overseas acquisitions of Australian assets'. The company's priorities lay with expanding in the Asia Pacific region.

Earlier this month Pacific BBA announced a rise in after-tax profit to ADollars 9.78m (ADollars 7.51m) for 1992 on sales of ADollars 291m. Its contribution to BBA's profits after tax and the minority deduction was Pounds 2.7m.

Pacific BBA shares closed 14 cents higher at ADollars 2.90 on the Australian stock exchange.

BBA Group Pacific BBA GB United Kingdom, EC AU Australia P3714 Motor Vehicle Parts and Accessories P3069 Fabricated Rubber Products, NEC P6719 Holding Companies, NEC COMP Disposals P3714 P3069 P6719 The Financial Times London Page 43 357
UK Company News: Avon sets up Saudi venture Publication 930317FT Processed by FT 930317

AVON RUBBER, the UK tyre and automotive components concern, has agreed to a joint venture with a group of Middle Eastern investors to build a Dollars 200m (Pounds 141m) tyre factory in Saudi Arabia.

Avon will invest Pounds 2m and will provide technology for the plant in return for a 5 per cent stake in the factory. The rest of the funding is to be provided by a group of Saudi investors.

The factory is expected to come on stream in 1995, with initial production targeted at 650,000 tyres a year. It is expected that after five years the plant will produce some 1m tyres - about 20 per cent of overall Saudi demand.

In December, Avon announced a 36 per cent rise in annual pre-tax profits to Pounds 9.15m. The group is heavily dependent on the US market where more than 25 per cent of its business is based.

Avon Rubber SA Saudi Arabia, Middle East P1541 Industrial Buildings and Warehouses P3011 Tires and Inner Tubes RES Capital expenditures RES Facilities P1541 P3011 The Financial Times London Page 43 194
UK Company News: Attwoods advance to Pounds 15.5m checked by US operations Publication 930317FT Processed by FT 930317 By RICHARD GOURLAY

ATTWOODS, the waste management company, yesterday reported an 11.6 per cent increase in profits to Pounds 15.5m, but was held back by its US metal recycling business.

Pre-tax profits in the six months to end-January rose from Pounds 13.9m to Pounds 15.5m, using the new FRS 3 and Fred 3 accounting principles, on sales up 16 per cent at Pounds 195.3m.

Earnings per share fell from 4.36p to 3.7p, after last year's dilutive debt-reducing rights issue. The interim dividend is maintained at 1.75p.

Mr Ken Foreman, chairman, said he was 'overall cautiously optimistic for the year'.

The main hit at the operating level came in the US from Mindis, the metal recycling business. The company, which is largely dependent on world metal prices, swung from an operating profit of Pounds 900,000 to a loss of Pounds 2.8m on sales of Dollars 54m (Pounds 38m) in the first half.

Profits would have been flat without the benefit of exchange translations from the dollar and D-Mark.

Exchange translation also affected net borrowings, with net debt up Pounds 50.6m from the year-end at Pounds 125.9m. This gave gearing of 52.2 per cent, up from 36.4 per cent. Interest cover fell to 10 times.

At constant exchange rates, debt would have risen by Pounds 25m, in line with Attwoods' expectations.

Operationally, the Florida waste operation performed well and reaped a net gain from the aftermath of Hurricane Andrew.

In continental Europe, an anticipated reduction in margins from the planned expansion of the waste management division, was worse than expected due to the downturn in the German economy.

Germany accounted for 16 per cent of group sales and was less likely to suffer from the economic downturn as much of its business was related to construction and environmental services in the eastern part of the country, the company said.

Attwoods GB United Kingdom, EC P1429 Crushed and Broken Stone, NEC P9511 Air, Water, and Solid Waste Management FIN Interim results P1429 P9511 The Financial Times London Page 43 354
UK Company News: Hi-Tec directors stand down Publication 930317FT Processed by FT 930317 By ANGUS FOSTER

Hi-Tec Sports, the sports shoe and leisure wear company, has announced the resignation of its two non-executive directors, only weeks after the two men joined.

Hi-Tec said Sir Michael Edwardes, former chairman of British Leyland, and Mr Richard Fenhalls, chief executive of Henry Ansbacher, were resigning immediately. No reason for their departure was given, and neither could be reached for comment.

However, it is understood they disagreed with the way Hi-Tec was being managed, especially since the company announced an interim loss of Pounds 2.84m last October. Mr Frank van Wezel, chairman, was unavailable for comment.

Hi Tec Sports GB United Kingdom, EC P3149 Footwear, Ex Rubber, NEC PEOP Personnel News P3149 The Financial Times London Page 42 134
UK Company News: Margins improve as Scholes expands 45% Publication 930317FT Processed by FT 930317 By CATHERINE MILTON

SCHOLES, the electrical installation materials group, lifted pre-tax profits by 45 per cent on almost flat turnover of Pounds 29.7m in the half year ended December 1992.

The group said it had achieved the improvement to Pounds 1.33m (Pounds 916,000) through a reduction in operating costs and working capital. Operating profits improved to Pounds 1.63m (Pounds 1.25m) and margins rose to 5.49 per cent (4.23 per cent).

The results were calculated in accordance with accounting standard FRS 3 with 1991 results restated.

The interim dividend is maintained at 1.6p. Earnings per share rose 36 per cent to 2.37p (1.74p).

Net borrowings fell to Pounds 2.25m (Pounds 5.07m) and gearing dropped to 9 per cent (22 per cent).

The group said borrowings had fallen mainly because it had reduced the number of weeks it carries stocks, but also because of scrutiny of capital spending.

Mr Bill Riches, chairman, said: 'We have not put a squeeze on capital expenditure, but we are scrutinising applications from the companies very carefully.'

Scholes Group GB United Kingdom, EC P3613 Switchgear and Switchboard Apparatus FIN Interim results P3613 The Financial Times London Page 42 206
UK Company News: White knight moves in for Brabant with Pounds 9.6m offer Publication 930317FT Processed by FT 930317 By PEGGY HOLLINGER

BRABANT Resources, the USM-quoted oil and gas explorer which has been fighting a paper bid from fellow resource company Aberdeen Petroleum, yesterday threw itself into the arms of a North American white knight in a last ditch effort to avoid a hostile takeover.

The board has recommended a 58p per share cash offer from Houston-based Energy Development Corporation, a subsidiary of a New Jersey public utility, valuing Brabant at Pounds 9.6m.

The price compares with Brabant's flotation price of 155p in October 1990. If the EDC offer succeeds, Brabant will withdraw from the USM.

Aberdeen, which itself is battling a hostile bid from Pittencrieff, the natural resources and telecommunications group, indicated yesterday that it intended to take up the EDC offer. Mr David Hooker, Aberdeen's managing director, said the company would make a Pounds 500,000 profit after 'transaction-related expenses'.

The EDC deal was agreed late Monday night as it became apparent that shareholders representing more than 40 per cent of Brabant were not supportive.

Mr Nicholas Gay, finance director, said that as recently as Wednesday, Brabant had been confident of victory in its battle against Aberdeen. However on Thursday, a New York arbitrage firm had managed to buy some 12.5 per cent of Brabant's shares from small shareholders.

Towards the end of the week it was also discovered that one of Brabant's largest institutional investors was anxious to dispose of its stake.

Mr Gay said that after these events - and taking into account the 21 per cent either held by or pledged to Aberdeen it became apparent that Brabant would be very vulnerable even if Aberdeen's bid failed.

EDC, which is being advised by Charterhouse, said it had received irrevocable undertakings to accept the offer representing 18.94 per cent of Brabant.

Brabant Resources Aberdeen Petroleum Energy Development Corp Pittencrieff GB United Kingdom, EC US United States of America P1311 Crude Petroleum and Natural Gas P2911 Petroleum Refining COMP Acquisition P1311 P2911 The Financial Times London Page 42 350
UK Company News: Simon shows decline to Pounds 5.3m - Recession and loss of contract lead to profit fall and dividend cut Publication 930317FT Processed by FT 930317 By ANGUS FOSTER

SIMON Engineering, overshadowed by dividend worries for more than a year, yesterday passed its final after announcing a steep fall in profits.

Pre-tax profits fell from Pounds 18.3m to Pounds 5.32m in the year to December 31, mainly due to recession and losses on an important paper engineering contract. The figures, which were below market expectations, were described as 'extremely poor' by Mr Roy Roberts, chairman. Mr Roberts announced he would retire at the end of this year.

The shares, which collapsed last year from 301p to a low of 70p, were down 21p early yesterday, but rallied to close 1p up on the day at 114p.

Turnover fell slightly to Pounds 487.6m (Pounds 514.5m), mainly because of reduced sales in process engineering. The paper contract, at Jacksonville, Florida, led to a Pounds 5m loss for the year and a Pounds 3.3m write back of profits taken in 1991.

The powered access equipment division was affected by falling sales and margins and trading profits fell from Pounds 5m to Pounds 3.1m. Mr Brian Kemp, chief executive, said there were signs of improvement in the US, but the UK remained weak.

Simon sold most of its environmental division earlier this year, leading to a Pounds 5.39m extraordinary charge. The company did not apply FRS 3 because it said the sale of the division was non-recurring.

A fall in advance receipts from process engineering, and an increase in US borrowings because of exchange translations, meant net debt increased from Pounds 37m to Pounds 101.2m. Gearing more than doubled to 87 per cent. However, the sale of the environmental division has reduced gearing since the year-end to about 65 per cent.

Earnings fell to 2.6p (12.5p) per share. Following the extraordinary charge, and an interim dividend of 5p - last year's total distribution was 15.7p including a final of 10.7p - there was a transfer from reserves of Pounds 7.83m (Pounds 11.1m).

COMMENT

Simon's shareholders must be wondering if anything else can go wrong. After being assured by the chairman 12 months ago that this year's dividend would be covered, yesterday's cut suggests over-optimism or misjudgement of the company's markets. The severity of recession is only a partial excuse, accounting for the downturns in the construction and offshore sectors, while the loss on the Jacksonville contract is harder to justify and could scarcely have come at a worse time. Simon remains cautious about this year and is not forecasting any growth in its markets. Although access sales in the US should pick up, Simon needs its process engineering advance receipts to improve and reduce borrowings. Forecast profits this year of Pounds 12m put the shares on more than 18 times. Probably the only prop under the shares at this level is the group's perceived vulnerability to takeover.

Simon Engineering GB United Kingdom, EC P3559 Special Industry Machinery, NEC P5169 Chemicals and Allied Products, NEC CMMT Comment & Analysis FIN Annual report P3559 P5169 The Financial Times London Page 42 527
UK Company News: Rate cuts undermine Wimpey Publication 930317FT Processed by FT 930317 By ANDREW TAYLOR, Construction Correspondent

WIMPEY, one of Britain's biggest construction groups revealed yesterday how sharp falls in UK and US interest rates had undermined carefully laid plans to restrict the cost of borrowings in the 1990s.

The group, like many large businesses, had entered into a series of hedging deals to limit rises in borrowing charges if international interest rates increased.

In fact UK and US interest rates have fallen and yesterday Wimpey announced provisions of Pounds 25.5m to cover the cost of unwinding those banking agreements.

Mr Roger Wood, finance director, said: 'The company in the late 1980s was concerned it would be squeezed between falling house prices and sales in the UK and US and rising international interest rates and entered into a series of hedging deals. '

In the three years from 1988 to 1990, these saved Wimpey about Pounds 11m. By last year interest rates had moved against the group costing it an additional Pounds 7m in interest charges in 1992.

The mechanisms used by Wimpey to protect itself from rising interest rates involved a a complex package of interest rate caps, swaps and collars.

These firstly put a ceiling on interest charges by requiring banks to pay any excess above an agreed fixed interest rate. In the case of the company's sterling debt the cap was fixed at about an average of 12 per cent. For dollar debt the cap was triggered at about 10.5 per cent.

Wimpey also entered into swaps and collars to fix rates at an average 11.4 per cent in sterling and 8.7 per cent in dollars. This meant that Wimpey would have to fund the difference if interest rates dropped below those levels.

Commercial interest rates currently are about 6 per cent in the UK and 3.25 per cent in the US, said Wimpey which under the hedging arrangements has been unable to benefit from lower interest charges.

Mr Wood who joined Wimpey in 1991 said that the group is now negotiating a new series of agreements to offset the impact of previous deals.

These involve capping sterling and dollar borrowings at much lower rates as well as protecting the company in case interest rates fall even further. The new arrangements will affect up to 40 per cent of the group's borrowings.

The provisions are to cover the difference between the cost of the new safety net and the original hedging arrangements.

The group estimates that it will save Pounds 8m in interest charges in the current year and Pounds 5m in 1994 as a result of its provisions on the former hedging arrangements.

George Wimpey GB United Kingdom, EC P1521 Single-Family Housing Construction P1541 Industrial Buildings and Warehouses P1611 Highway and Street Construction FIN Annual report COMP Company News P1521 P1541 P1611 The Financial Times London Page 42 483
UK Company News: Graseby to raise Dollars 25m via US flotation Publication 930317FT Processed by FT 930317 By RICHARD GOURLAY

GRASEBY, the environmental monitoring and medical equipment company, yesterday said it will float its environmental business in the US on Nasdaq, raising about Dollars 25m (Pounds 17m) but retaining control.

The move is designed to strengthen the balance sheet by reducing debt, which will allow the group to finance further growth of its environmental and product monitoring and its medical businesses.

The company also announced yesterday a sharp drop in profits before tax from Pounds 7.5m to Pounds 1m for 1992, but the dividend is held at 10.9p, with a final of 7.6p.

The company said that further development had been hampered not only by high debt, but also by the level of the above average dividend pay-out, a hangover from the days when Cambridge Electronics - Graseby before the name change - was rated as a yield stock.

The newly floated company, Graseby Andersen, will not pay a dividend, putting some pressure on the parent to meet its dividend bill.

Earnings per share fell from 8.7p to 1.3p, after an above - the - line Pounds 1.5m profit on the sale of properties and a loss of Pounds 5.8m on sale and disclosure of discontinued operations. This was in line with the new FRS 3 standard.

Sales fell from Pounds 109.1m to Pounds 102.6m, and operating profit on continuing operations was Pounds 9.5m (Pounds 12.4m). Operationally the medical, instruments and environmental businesses performed well, but defence profits fell from Pounds 6m to Pounds 300,000.

Graseby Andersen had sales of Dollars 39m and operating profits of Dollars 4.7m in 1992. It will be floated with Graseby Specac, the optical company.

Mr John Jackson, Graseby chairman, said the flotation would solve the balance sheet problems and would also increase motivation for the US management.

Graseby Andersen should benefit from changes to the US environmental programme once the Clinton administration settles down.

Because of a lack of distributable reserves in the US, the former Tace businesses - broadly the Graseby Andersen business being floated - was not paying dividends to the group.

Graseby Graseby Anderson GB United Kingdom, EC US United States of America P3841 Surgical and Medical Instruments P3822 Environmental Controls COMP Company News FIN Share issues FIN Annual report P3841 P3822 The Financial Times London Page 42 397
George Wimpey reports Pounds 112m loss Publication 930317FT Processed by FT 930317 By ANDREW TAYLOR, Construction Correspondent

GEORGE WIMPEY, Britain's second largest housebuilder, yesterday announced a Pounds 112.4m pre-tax loss, the worst result in its 100-year history.

The loss, taken after an exceptional provision of Pounds 113.8m, underlines the depth of the recession in the UK housing and construction markets. It follows a Pounds 16.1m pre-tax loss in 1991.

Mr Joe Dwyer, chief executive, however claimed that the worst may now be over - particularly in the UK housing market where Wimpey's sales had risen 33 per cent since the New Year against the first 10 weeks of last year.

'There are clear signs that the market is strengthening. I believe this trend will continue provided measures in the Budget do not undermine fragile returning confidence,' said Mr Dwyer.

The company's shares rose almost 8 per cent to 136p following Wimpey's upbeat comments on UK house sales and on reports that group borrowings had reduced further than expected.

Net debt, benefiting from disposals and a strong cashflow from construction, fell last year from Pounds 206m to Pounds 136m reducing the company's gearing from 35 per cent to 30 per cent, its lowest for a decade. The group raised more than Pounds 300m from selling commercial properties and peripheral businesses since 1989.

Provisions, mostly against the group's UK and US housing and commercial property operations, included Pounds 25.5m for unwinding interest-rate hedging deals.

Arrangements agreed in the late 1980s to protect Wimpey against rising interest rates had worked against the group as borrowing costs had fallen, said Mr Dwyer. These added about Pounds 7m to interest charges which last year fell Pounds 29.1m to Pounds 19.4m.

Mr Dwyer said: 'We believe that our 1992 results represent a low point in our profitability. I expect trading overall to remain difficult during 1993. However there are now positive signs emerging that the business cycle is beginning to turn both in the UK and US.'

The company, in spite of losses per share after exceptional and extraordinary provisions of 41.31p (compared with 11.13p loss per share in 1991), is paying a final dividend of 3.25p (down from 6.5p) making a total for 1992 of 5.25p (against 10.5p)

Lex, Page 18; Hedging details, Page 42

George Wimpey GB United Kingdom, EC P1522 Residential Construction, NEC P16 Heavy Construction, Ex Building FIN Annual report P1522 P16 The Financial Times London Page 41 406
Companies in this issue Publication 930317FT Processed by FT 930317

--------------------------------- Companies in this issue --------------------------------- UK --------------------------------- Aberdeen Petroleum 42 Airtours 60,41 Alliance Trust 44 Associated Nursing 44 Attwoods 43 Avon Rubber 43 BBA 43 BM Group 13 BT 9 Baring Securities 41 Bolton 44 Brabant Resources 42 British Petroleum 60 Cala 44 Canning 44 Courtaulds 44 David Lloyd Leisure 44 Graseby 42 Hall Engineering 44 Hi-Tec Sports 42 Highland Dist 60 Inchcape 44

Johnson Cleaners 43 Law Debenture 43 Lionheart 44 Macmillan 13 National Power 8 Owners Abroad 60,41 Paterson Zochonis 42 Polly Peck Intl 43 PowerGen 8 Ross Group 13 Scapa 44 Scholes 42 Shell Transport 60 Simon Engineering 42 Southern Electric 60 Spirax-Sarco Eng 44 T&N 14 Thames TV 13 Thomas Cook 41 Thorn EMI 60 Triplex Lloyd 43 Unitech 44 Wimpey (George) 42,41 --------------------------------- Overseas --------------------------------- Banco Ambrosiano 45 CS Holding 46

Capital Cities/ABC 46 Coles Myer 48 Creative Technology 48 Digital Equipment 46 Dow Chemical 46 Energy Development 42 Fox 46 GE 45 GIO Australia 48 General Electric 41 IRI 45 Mellon Bank 46 MoDo 45 Olivetti 45 Pacific BBA 43 Rautaruukki 45 SKF 45 Santos 48 Sumitomo Tst & Bank 48 Tungsram 41,45 Volksbank 46 Volkswagen 41 Wang Laboratories 46 Wolters Kluwer 46 ---------------------------------

XA World P99 Nonclassifiable Establishments COMP Company News P99 The Financial Times London Page 41 225
Split over strategy for merchant bank: The aftermath of a disagreement at Baring Securities Publication 930317FT Processed by FT 930317 By ROBERT PESTON

Five years ago, Mr Christopher Heath was a stockbroker who had it all. He was reputedly the UK's highest paid man, earning several millions pounds a year - and the Asian securities firm he had founded, Baring Securities, had received establishment approval with a Queen's Award for Export Achievement (in 1991 it won a second Queen's Award).

On Monday, he appeared as mortal as the hundreds of other City of London brokers who have lost their jobs in the past few years. He resigned as chairman of Baring Securities and all his other directorships in the firm's parent company, Barings Plc, having had a disagreement over strategy with the parent company's deputy chairman, Mr Andrew Tuckey.

If the spoils for Mr Heath have been rich, they have not been insubstantial for the merchant banking group Barings - though the precise level of its earnings from Baring Securities have been obscured in its traditionally opaque accounts.

In the early 1980s, Barings had been a staid and somewhat sleepy merchant bank - a pale shadow of the family business described by the Duc de Richelieu in 1818 as the sixth great power in Europe (though Barings is probably today better known for being at the heart of the City of London's greatest financial crisis of the last century, the 1890 Baring crisis).

In 1984, Barings made one of its most astute investments when it bought the Asian stockbroking business set up by Mr Heath. The core of this securities business was the purchase and sale of Japanese equities to non-Japanese investment institutions.

Foreign interest in Japanese shares reached a peak in the mid-1980s - and Baring Securities was one of the main beneficiaries. It became the most profitable UK-owned broker of Japanese shares - and one of the most profitable Asian securities firms in the world (though its profits were a fraction of domestic Japanese firms).

The success of Baring Securities seemed to give a new impetus to Barings' traditional activities - though much of the credit for this revival was because of a reorganisation by Mr Tuckey.

Barings' fund management business has grown rapidly and today has more than Pounds 22bn under management. But perhaps more important has been the revival in the traditional heart of Barings, its corporate finance department which provides advice to UK and international companies. Its return to the first division of UK corporate finance was confirmed last year when it was chosen by Lloyds Bank as its adviser in the battle with Hongkong Bank for control of Midland Bank.

'The success of Baring Securities was helpful to the group as a whole,' Mr Tuckey said yesterday. 'But the success of the bank (in corporate finance) and of asset management would have happened in any event.'

The culmination of his expansionist strategy came at the end of 1991 when Barings bought a 40 per cent stake in one of Wall Street's investment banks, Dillon Read. In the table, the return to profit of Barings' US business is predominantly attributable to Dillon Read.

But last year Mr Heath's magic goose stopped laying golden eggs. As Japanese share prices have fallen dramatically over the past three years, foreign investors' interest in Japan has wained.

Almost 40 per cent of Baring Securities' revenues are still linked to Japanese securities trading, even though it has over the past five years built up highly profitable businesses in other Asian and South American markets.

As a result, Baring Securities incurred a loss of nearly Pounds 20m last year, in part due to the costs of cutting more than 100 staff in September and making provisions for the costs of surplus office space. Because Baring Securities is headquartered in London, its loss contributed to the fall in its parent's UK profits from Pounds 32.1m to Pounds 2m in 1992 as shown in the table.

The disagreement between Mr Heath and Mr Tuckey, which reached a climax at the weekend, was over measures to return Baring Securities to profit. Mr Heath wanted Barings to allocate more of its capital to Baring Securities, so that the securities firm could carry out more proprietary trading, which is the business of trading securities and derivative instruments for its own account - several US securities houses, such as Salomon Brothers, have adopted such a strategy in Japan. However, Mr Tuckey believed this would make the group too exposed to the performance of the securities business. His aim is to create a group of equally important divisions, so that a poor performance by one business can be offset by profits from another.

He believes the way to boost Baring Securities' profits is to encourage it to work more closely with the corporate finance department, so that it can win an increasing number of mandates to issue new securities for companies in Asia and South America.

The other part of his strategy, which will be carried out by Baring Securities' new chairman, Mr Miles Rivett-Carnac, is for Baring Securities to concentrate on emerging markets, such as those in South America, Singapore, Korea, Indonesia, Taiwan and Malaysia, where dealing commissions are far wider than in developed markets.

But Mr Tuckey insisted there were no plans to prune the Japanese business any further. He also denied market speculation that there would be cuts in the 100 staff employed in trading derivatives. Indeed he said that the securities business had proved to be remarkably resilient, following the reorganisation last autumn. 'We have maintained our market share in all major markets,' he said. Baring Securities is back in profit.

As for Mr Heath, he is staying at Barings as a consultant. However, his friends say he is still 'very hungry', for all his millions. Baring Securities could one day face competition from a new Heath-led broker.

------------------------------------------------------------------- BARINGS: PRE-TAX PROFIT (POUNDS 000S) ------------------------------------------------------------------- 1992 1991 ------------------------------------------------------------------- UK 2,018 32,125 Other Europe 3,596 1,044 North America 5,123 (3,015) Asia/Pacific 26,684 21,286 Rest of world (608) (86) Interest and exceptional costs (15,549) (8,873) ------------------------------------------------------------------- Total 21,264 42,481 -------------------------------------------------------------------

Baring Securities GB United Kingdom, EC P6211 Security Brokers and Dealers MGMT Management P6211 The Financial Times London Page 41 1044
Owners Abroad fights off hostile bid: Attempted takeover by Airtours thwarted by Thomas Cook's 'spoiling action' Publication 930317FT Processed by FT 930317 By RICHARD GOURLAY and MICHAEL SKAPINKER

OWNERS Abroad, the UK's second largest holiday tour operator, yesterday narrowly fought off the hostile Pounds 290m bid from rival Airtours after one of the closest takeover battles the City has seen in recent years.

The outcome was only decided yesterday after Gartmore, a 7.6 per cent shareholder in Owners Abroad and a strong early supporter of the Airtours bid, switched its allegiance to the defender at the last moment.

Thomas Cook, the German-controlled travel agency which will now forge a commercial tie-up with Owners Abroad, also proved decisive. Yesterday, Thomas Cook increased its stake to 8.37 per cent.

At 1pm when the offer closed, Airtours had received acceptances from shareholders representing 35.18 per cent of Owners' shares. Airtours continued to buy shares yesterday morning, taking its stake in Owners Abroad to 8.2 per cent. Thomas Cook is expected to end up with a 17.8 per cent stake in Owners Abroad. Last week Thomas Cook said it would tender for up to 12.5 per cent of Owners' shares at 150p. Owners' shares fell yesterday from 138p to 126p. Owners Abroad's share register will also include Mercury Asset Management, the 15 per cent shareholder that supported Airtours' bid.

Owners' defence of its independence was welcomed by many in the holiday industry who were angry when the Secretary of State for industry did not refer the bid to the Monopolies and Mergers Commission. 'The market has done the job that the Secretary of State failed to do,' said Mr Noel Josephides, chairman of the Association of Independent Tour Operators. The small operators had warned they could be forced out of business by a price war that Thomson, the market leader in the UK, would have launched had Airtours won.

Mr David Crossland, Airtours chairman, said he was disappointed Thomas Cook's 'spoiling action' had carried the day. Some 43 per cent of Owners' shareholders had sold to Airtours or accepted the offers, he said.

'As the largest independent customer of Air 2000 (Owners charter airline) and now one of the largest shareholders in Owners Abroad, we shall be watching developments at the company closely,' Mr Crossland said.

Lex, Page 18

Owners Abroad Group Airtours Thomas Cook and Sons GB United Kingdom, EC P4724 Travel Agencies P4725 Tour Operators COMP Acquisition P4724 P4725 The Financial Times London Page 41 413
VW cuts dividend to DM2 and shakes up management Publication 930317FT Processed by FT 930317 By CHRISTOPHER PARKES FRANKFURT

VOLKSWAGEN, Germany's stricken motor industry group, yesterday slashed its dividend and shook out its management board in the wake of an 86 per cent profits collapse last year.

The key new appointment was that of Mr Jose Ignacio Lopez de Arriortua, snatched from arch-rival General Motors in an unseemly tug-of-war over the weekend.

Net group earnings tumbled to DM147m (Pounds 62m) from DM1.1bn in 1991, and the payout was cut to DM2 on both ordinary and preference shares, compared with DM11 and DM12 respectively, the company said yesterday.

Turnover on the delivery of a record 3.52m vehicles last year rose to DM85.4bn from DM76bn, adding weight to the popular view that the more cars VW sells, the less profit it makes.

Mr Lopez was named as director in charge of production and purchasing with immediate effect. His was the only outside face to appear in the new management team picked by Mr Ferdinand Piech, who has been group chairman since January 1.

Mr Lopez replaces Mr Gunter Hartwich, who is to leave the company and will function as an adviser, the company said.

As expected, Mr Dieter Ullsperger, finance director, has lost his job. His place will be filled immediately by Mr Werner Schmidt, a hitherto low-profile director formerly in charge of overseas operations and distribution strategy.

Mr Ulrich Seiffert, the research and development chief, lost his place on the parent board, but he retains his place as R&D director at the Volkswagen brand subsidiary. His research responsibilities will be taken on by Mr Gunnar Larsson, promoted last month from the group's Audi subsidiary.

More detailed information on the group's performance and prospects will be given at Mr Piech's first annual press conference on March 31.

Mr Piech, an Austrian promoted from the leadership of Audi, warned recently that the German car industry faced its worst crisis since 1945.

The company has already announced plans to shed 36,000 workers to regain competitiveness. This job-cutting programme is likely to be stepped up and run in parallel with a squeeze on suppliers masterminded by Mr Lopez.

Volkswagen DE Germany, EC P3711 Motor Vehicles and Car Bodies FIN Annual report PEOP Appointments P3711 The Financial Times London Page 41 385
International Company News: Nike shares up on record earnings Publication 930316FT Processed by FT 930714 By KAREN ZAGOR NEW YORK

SHARES in Nike climbed more than 5 per cent yesterday after the company posted record third-quarter earnings. The shares advanced Dollars 4 1/2 to close at Dollars 76 3/8.

Although the results were in line with expectations, investors were encouraged by a jump in 'futures' orders and news that Nike's US footwear business had its strongest quarter in two years.

The company, based in Beaverton, Oregon, said orders for footwear and apparel scheduled for delivery between March and July climbed 21 per cent to Dollars 1.65bn. It warned that these orders were not necessarily indicative of total revenues for successive periods.

Nike's net income for the quarter to February rose 8.5 per cent to Dollars 89.5m, or Dollars 1.16 a share, from Dollars 82.5m, or Dollars 1.08. Revenues advanced 12.1 per cent to Dollars 972m, against Dollars 867m.

For the first nine months, Nike's net earnings advanced 11.5 per cent to Dollars 288.1m, or Dollars 3.74, from Dollars 258.5m, or Dollars 3.38. Revenues grew 15.2 per cent to Dollars 2.95bn from Dollars 2.56bn.

US sales rose 14 per cent in the quarter to Dollars 655.7m, while

international sales were 4 per cent higher at Dollars 265.2m.

Nike Inc US United States of America P31 Leather and Leather Products FIN Interim results P31 The Financial Times London Page 29 237
International Company News: Nike shares jump on record earnings Publication 930316FT Processed by FT 930714 By KAREN ZAGOR NEW YORK

SHARES in Nike climbed more than 5 per cent yesterday morningafter the company posted record third-quarter earnings. The shares advanced Dollars 3 7/8 to Dollars 75 3/4 at mid-day.

Although the results were in line with expectations, investors were encouraged by a jump in 'futures' orders and news that Nike's US footwear business had its strongest quarter in two years.

The company, based in Beaverton, Oregon, said orders for footwear and apparel scheduled for deliver between March and July climbed 21 per cent to Dollars 1.65bn. The company warned that these orders were not necessarily indicative of total revenues for successive periods.

Nike's net income for the three months to February 28 rose 8.5 per cent to Dollars 89.5m, or Dollars 1.16 a share, from Dollars 82.5m, or Dollars 1.08. Revenues were 12.1 per cent higher at Dollars 972m, against Dollars 867m.

For the first nine months, Nike's net earnings advanced 11.5 per cent to Dollars 288.1m, or Dollars 3.74, from Dollars 258.5m, or Dollars 3.38. Revenues grew 15.2 per cent to Dollars 2.95bn from Dollars 2.56bn.

In the US, sales rose 14 per cent in the quarter to Dollars 655.7m, with growth led by footwear revenues, which were 15 per cent higher at Dollars 548.2m.

The company's total international sales were 4 per cent higher at Dollars 265.2m. The company said international revenues would have been 11 per cent higher had dollar exchange rates remained constant. Although international footwear sales slid 1 per cent to Dollars 204.1m in the quarter, apparel sales rose 25 per cent to Dollars 61.1m.

In Europe, Nike said it was investing aggressively in the Nike brand. The company expects its fully-integrated automated information systems to come on line this month. This should provide greater communication and co-ordination between European countries.

Nike Inc US United States of America P31 Leather and Leather Products FIN Interim results P31 The Financial Times London Page 29 337
International Company News: Vontobel to lift dividend after 10% advance Publication 930316FT Processed by FT 930610 By IAN RODGER ZURICH

VONTOBEL, the Zurich private banking group, reported that consolidated net profit rose 9.9 per cent in calendar 1992 to SFr24.5m (Dollars 15.9m).

Operating income was up 7.6 per cent at SFr168.9m, with trading income jumping 30 per cent to SFr32.4m and net interest income rising 25.2 per cent to SFr29.3m. Net commission income was down 3.1 per cent to SFr93m.

The directors of Vontobel Holding, the group's quoted parent company, said they would propose an increase in dividends for its year to March 31 1993, but the amount had not yet been decided.

Vontobel-Druck CH Switzerland, West Europe P602 Commercial Banks FIN Annual report P602 The Financial Times London Page 30 131
International Company News: Eli Lilly surprises with profit warning Publication 930316FT Processed by FT 930608 By KAREN ZAGOR and REUTER NEW YORK, MINNEAPOLIS

ELI LILLY, the large US pharmaceuticals company, yesterday said its first-quarter earnings per share could fall as much as 20.5 per cent before accounting changes, reflecting slower sales of several important drugs.

Mr James Cornelius, Lilly's chief financial officer, said the company expected first-quarter earnings, excluding accounting changes, to fall in a range of Dollars 1.20 to Dollars 1.30 a share, compared with Dollars 1.51 a year earlier. In the 1992 quarter, Lilly's results benefited significantly from the sale of its capsule business.

Mr Cornelius blamed the disappointing outlook on slow sales of anti-infectives because of a relatively mild flu season and increased competition in the US and western Europe. The company's medical devices and diagnostics division has also seen sales slide.

Mr Viren Mehta, partner at analysts Mehta & Isaly in New York said: 'Until recently, it was unheard of to see earnings declines in the pharmaceuticals industry but we are seeing significant changes in the industry now.'

In addition to concern about drug pricing which has plagued the industry in recent months, Lilly's performance has been hurt by pressure on sales of its leading Prozac anti-depressant and the absence of important new drugs in the pipeline.

On Wall Street, shares in Lilly closed down Dollars 3/8 at Dollars 51 3/8 . The announcement came after the close in New York.

General Mills, the US consumer foods producer and restaurant chain operator which reported record earnings in the third quarter, expects full-year 1993 to bring record sales, earnings and earnings per share, Reuter reports from Minneapolis.

In the third quarter ending February 28, General Mills had net income of Dollars 140.9m, or 86 cents a share, against Dollars 132.1m, or 80 cents, a year earlier. Sales rose to Dollars 2.01bn from Dollars 1.90bn.

Eli Lilly and Co General Mills Inc US United States of America P5812 Eating Places P20 Food and Kindred Products P2834 Pharmaceutical Preparations FIN Interim results P5812 P20 P2834 The Financial Times London Page 30 349
People: Non-executive directors Publication 930316FT Processed by FT 930608

Sir David Nicolson is resigning from SOUTHERN WATER.

Southern Water GB United Kingdom, EC P4941 Water Supply PEOP Appointments P4941 The Financial Times London Page 17 36
Commodities and Agriculture: Avoiding the pitfalls of amenity agriculture - Most successful ideas for diversifying farm enterprises quickly become oversubscribed / Farmer's Viewpoint Publication 930316FT Processed by FT 930415 By DAVID RICHARDSON

CHARLES BENNETT organises children's parties on his 50-hectare (120-acre) farm between Oxford and Thame. The entertainment includes pony rides, looking at lambs, collecting eggs from nest boxes under the free range hens, treasure hunts around the farmyard and tractor trailer rides around the fields, all culminating with tea in the hay barn.

The children, who are between three and ten years old - 'they get too difficult to control after that', says Mr Bennett - love the temporary freedom of the farm and getting dirty. Parents are only too happy to pay him for providing the facility. And incidentally, in case any Food Safety Official begins to worry about Mr Bennett's ability to provide food to the high standards they require, he insists that the parents provide a picnic. All he does is to allow the children to eat it in his barn.

This activity comes under the general heading of diversification, which farmers have been encouraged to explore in recent years as the government has sought to divert resources from the production of food perceived to be in surplus. But the truth is that farmers who enjoy having people around the farm, like Mr Bennett, or who became bored with planting seeds and then waiting long months for harvest, or, even more likely, needed to increase their incomes, have been diversifying for years.

Mr Bennett, for instance, has a long record of holding farm open days on bank holidays and weekends. He also has a farm shop selling produce from the farm at retail rather than wholesale prices. With only 120 acres from which to try to derive a living he needs extra income from alternative sources and I wish him every success with his efforts. But the history of such initiatives is littered with failures

The classic diversification is farmhouse holidays. Farmers in beautiful scenic areas, which are, almost by definition, the most difficult in which to make a living, long ago realised that they had to earn more cash from somewhere. Some decided to offer bed and breakfast for passing travellers and signs appeared at farm gates in the hills and moorlands of Britain.

Charges were modest and country-loving guests could not believe the value for money compared with hotels. Comfortable beds and slap-up farm breakfasts combined to create a demand for such accommodation and more and more farmers joined the bandwagon. The number of beds increased, the standard of bedroom offered rose, in many cases to include en suite bathrooms, the costs of providing the services rocketed and charges had to go up. In many of those areas expensive uprated bedrooms now stand empty for most of the year.

It is a classic case of a good idea that has been overdone and it shows how fragile is the balance between success and failure when diverting resources from the farmer's basic task of producing food to exploiting a niche market, which is necessarily more limited in potential.

Another concept that became popular a few years ago but now seems to have run out of steam is pick-your-own. Fruit-growing is inescapably labour-intensive. You cannot mechanise the picking of strawberries and expect them to be of sufficient quality to grace the tea table (although it is now possible to pick them by machine if they are destined for the jam pot). And getting the quantity and quality of labour when it is needed has become increasingly difficult over the years.

Someone, I don't know who, had the brilliant idea that if you could persuade the public to pick their own you could charge less for it and if they picked sub-standard produce they would only have themselves to blame.

All through the 1970s and early 1980s the idea spread like wildfire across the country. But just like b & b it has been overdone, with too many PYO farms chasing too few customers.

Some PYO farms are still doing well. But many more are closing for lack of punters, who prefer, it appears, to pay inflated supermarkets prices for the convenience of having their produce pre-packed.

I should not pretend, however, that I am immune to the temptation to diversify. Even as I write, the farm men are converting a range of redundant farm buildings into horse stables in the hope that the local riding fraternity will want to pay us money to keep their animals in them. Having seen how easy it is to get it wrong I have no illusions about the dangers. We are therefore controlling the costs of the investment rigidly.

The one certainty about agricultural diversification is that it will cost money; but it is by no means certain that it will make money. Even if a feasibility study suggests that there is potential for a farm to divert some of its activity in a certain direction there is little doubt that it will be copied by other farmers and overdone within a few years. Such is the nature of farmers.

Even the Ministry of Agriculture seems to have got that message at last. Five years ago the minister launched a scheme to grant aid for diversification on farms. The money was specifically directed towards feasibility studies and marketing and 1,500 farmers have so far received Pounds 8m. There are a further 750 diversifying farmers in the pipeline whose schemes have been approved but who have not yet had the cash.

But a few weeks ago the prospect of more such grants was withdrawn. For the fact is that too many farmers try to diversify from financial weakness rather than strength in the vain hope that it will solve all their problems.

It is said, moreover, that the banks are increasingly warning farmers against such activities because many of the clients from under whom they are now having to pull the rug are the ones who have spent big money on diversification.

GB United Kingdom, EC P0191 General Farms, Primarily Crop TECH Services CMMT Comment & Analysis P0191 The Financial Times London Page 38 1032
UK Company News: FII launches bid for shoe rival C&J Clark Publication 930316FT Processed by FT 930401 By PEGGY HOLLINGER

SHARES IN FII were suspended at 488p yesterday as Britain's second largest shoe manufacturer announced it was in takeover talks with a company identified as its private UK rival, C&J Clark.

The quoted company, with a market value of about Pounds 70m, is believed to have tabled an offer comprising cash or shares valuing Clark at between Pounds 100m and Pounds 150m.

FII, which claims about 6 per cent of the UK shoe manufacturing market and is a major supplier to Marks and Spencer, has been interested in a deal with the family-held company for some five years. If its bid succeeds, FII is expected to retain Clark's retailing operation - K Shoes and Ravel.

Meanwhile, Berisford dampened speculation that it was a front runner in the bidding for Clark. The property and commodities company said it was exploring the possibility of an offer and no final decision had been taken.

A minority group of Clark's board members, who sought to unseat the chairman last year, are almost certain to oppose a sale unless the price is at least 200p a share, or Pounds 154m. They are believed to be unwilling to see the company - which is 70 per cent held by more than 500 Clark family members - pass out of family control.

FII Group C and J Clark GB United Kingdom, EC P314 Footwear, Ex Rubber COMP Acquisition P314 The Financial Times London Page 27 258
World Trade News: Rolls joint venture secures big order Publication 930316FT Processed by FT 930330 By PAUL BETTS, Aerospace Correspondent

BMW Rolls-Royce, the joint venture formed two years ago, has won its second important order for the BR710 aero-engine it is developing for business and regional jets.

The joint venture's BR710 engine has been chosen by the Canadian Bombardier group to power its Canadair global express business aircraft.

No value has been placed on the deal but Bombardier has won 37 firm orders for its long range twin engine business jet. This could represent about Dollars 75m worth of business.

The aircraft, which can fly 6,500 nautical miles non-stop at a maximum operating altitude of 51,000 ft, is due to make its first flight in 1996 with the first customer deliveries starting late 1997.

BMW Rolls-Royce is developing the BR710 family of engines at a new plant outside Berlin. The joint venture won its first order last September when Gulfstream of the US ordered 200 BR710 engines worth Dollars 500m to power its Gulfstream V corporate jet.

BMW Rolls Royce Bombardier GB United Kingdom, EC DE Germany, EC P3724 Aircraft Engines and Engine Parts MKTS Contracts P3724 The Financial Times London Page 3 203
Lopez to leave GM after all Publication 930316FT Processed by FT 930324 By CHRISTOPHER PARKES and MARTIN DICKSON FRANKFURT, NEW YORK

GENERAL Motors' global buying chief, Mr J. Ignacio Lopez de Arriortua, is, after all, leaving the US carmaker, it was revealed late yesterday.

His departure was announced at a GM press conference, but it was not clear where Mr Lopez would be moving to.

Earlier in the day, Volkswagen's shares had fallen on the Frankfurt stock exchange as it appeared that the German carmaker had failed in its attempt to poach Mr Lopez.

VW shares slipped DM7.30 to DM285.50 after the weekend's surprise announcement that Mr Lopez was to stay in Detroit.

An expected fall in VW profits and a cut in the dividend from DM11 to DM5 or less, due to be confirmed at a meeting of the VW supervisory board today, had been widely discounted.

GM had been expected to announce at yesterday's conference in Detroit that Mr Lopez was being promoted to executive vice-president, with much greater responsibility for the group's North American manufacturing operations.

Volkswagen yesterday repeated that although the company and Mr Lopez had both signed a contract for him to join the German group within weeks, it would not come into effect 'for the time being'.

The company refused to comment on speculation that Mr Lopez had been 'persuaded' to stay by a further promotion within GM or the US group's insistence on his respecting a clause in his contract preventing him from moving directly to a competitor.

However, Mr Ferdinand Piech, VW's chief executive, made plain on Sunday that Mr Lopez had come under pressure through 'persistent interventions' from within GM.

This pressure followed a statement last Thursday from Mr John Smith, GM president, in which he tacitly accepted that he had lost the battle to hold on to one of his most valuable executives. Mr Lopez's most important contribution had been 'the organisation of a strategy, a team and a process to achieve cost-reduction benefits throughout the corporation', he said.

These are precisely the contributions Mr Piech urgently needs to restructure VW's cost-base and revive profitability.

General Motors Corp US United States of America P3711 Motor Vehicles and Car Bodies PEOP Personnel News P3711 The Financial Times London Page 23 379
Olivetti plans rights issue as losses rise sharply to L650bn Publication 930316FT Processed by FT 930324 By HAIG SIMONIAN MILAN

OLIVETTI, the Italian computers and office equipment group, yesterday announced a L903bn (Pounds 411m) rights issue and said it would report a sharply increased net loss of about L650bn for 1992.

The cash, to be raised through new shares and convertible bonds, will be used for expansion, notably in the increasingly linked areas of information technology and telecommunications.

'In the short term, the money will be used to bring debt down to zero,' said Mr Carlo De Benedetti, Olivetti's chairman, whose listed CIR holding company controls the group.

'But we want to use the funds to accelerate Olivetti's development into new areas,' he added yesterday. Last week, Olivetti took a stake in EO, a Silicon Valley start-up company marketing 'personal communicators' - pocket telephones with inbuilt fax and computing capabilities.

Olivetti's 1992 loss, to be announced officially in May, will be nearly 50 per cent larger than the L460bn lost in 1991. Sales fell 6.8 per cent to L8,020bn and operating losses surged to L230bn from L28bn. But Olivetti's more aggressive price cutting on personal computers had triggered a 35 per cent rise in sales in the final quarter, he added.

At the year-end, Olivetti's net debt stood at L960bn. The dividend will be omitted again, Mr De Benedetti said.

He added that Olivetti faced further heavy restructuring costs of up to L250bn this year, as it planned to shed a further 3,500 workers. The amount set aside for restructuring charges fell to L260bn in 1992 from L338bn in 1991, but the actual figure spent was L170bn higher, as it included money provided for in 1991, Mr De Benedetti said.

He said the rights issue, priced at the shares' nominal value of L1,000, indicated Olivetti's determination to survive. CIR would subscribe its full quota, costing about L300bn.

Shareholders will be offered six ordinary shares for every four shares, of whatever category, now held. Shareholders may subscribe to at least half their entitlement in the form of new equity, and the remainder as six-year convertible bonds which will pay interest of between 6 per cent and 8 per cent, and be interchangeable with the new ordinary shares.

Lex, Page 22

Olivetti and Cie IT Italy, EC P3579 Office Machines, NEC FIN Share issues P3579 The Financial Times London Page 23 399
World Trade News: EC ponders next step in row with US - US withdrawal from trade procurement talks has put Sir Leon on the spot Publication 930316FT Processed by FT 930324 By LIONEL BARBER BRUSSELS

THE EC is studying all options - including retaliation - in response to the likely US decision on March 22 to bar European companies from winning certain federal contracts in telecommunications and power generation, the European Commission said yesterday.

The Commission said Sir Leon Brittan, EC commissioner for external affairs, had yet to choose how to respond to the Clinton administration's unexpected withdrawal from talks on the procurement dispute due to open yesterday. But in response to threats of sanctions by Mr Mickey Kantor, US trade representative, an EC official said: 'We take him at his word.'

Mr Kantor's abrupt decision to call off talks has escalated tensions already inflamed by EC-US disagreements on commercial aircraft subsidies, steel subsidies and the stalled Gatt Uruguay Round. It also has embarrassed Sir Leon, who had claimed that a recent trip to Washington had cemented relations with Mr Kantor.

EC officials admitted yesterday that Mr Kantor had failed to make a courtesy call to Sir Leon ahead of last Friday's announcement. One Brussels official described Mr Kantor as 'unpredictable', while others said the unilateral withdrawal amounted to a spur-of-the-moment decision which had surprised the US negotiating team.

Mr Kantor broke off negotiations after learning that the EC would not waive Article 29 in the EC utilities directive, which gives European companies a 3 per cent price preference over foreign bidders, while also giving favoured treatment to EC bidders offering more than 50 per cent local content.

The EC is ready to waive Article 29, but only if the US agrees to waive buy-American provisions on federal and state contracts in water, gas, electrical and telecoms contracts.

US demands that the Community waive the clause before yesterday's talks were tantamount to 'getting us to walk naked into the negotiating room', the EC said.

Mr Kantor is due to visit Brussels for talks with Sir Leon on March 29, but the latest row had 'rewritten the agenda', an EC official said.

US United States of America QR European Economic Community (EC) P481 Telephone Communications P4911 Electric Services P9721 International Affairs GOVT Government News P481 P4911 P9721 The Financial Times London Page 3 391
Schesinger claims more realistic exchange rate structure from EMS turbulence Publication 930316FT Processed by FT 930324 By CHRISTOPHER PARKES FRANKFURT

Recent turbulence in the European monetary system has resulted in a sounder, more realistic exchange rate structure, Mr Helmut Schlesinger, president of the Bundesbank claimed yesterday, Christopher Parkes writes from Frankfurt. It was a mistake to interpret events of the past few months as a dramatic setback for the EMS, he added.

It was also wrong to expect hard currency countries to direct their interest rate policies primarily towards maintaining exchange rate stability. That could lead the EMS into an 'inflationary cul de sac', he said in a lecture in Milan. He also spoke out against changing the rules of the exchange rate mechanism.

DE Germany, EC P9311 Finance, Taxation, and Monetary Policy GOVT Government News P9311 The Financial Times London Page 2 142
International Company News in Brief: Rheinmetall Berlin Publication 930316FT Processed by FT 930325 By REUTER DUSSELDORF

RHEINMETALL Berlin is taking a 63 per cent stake in Preh-Werke, the electronics group, for an undisclosed sum, Reuter reports from Dusseldorf.

Rheinmetall said the acquisition, which was subject to approval by the federal cartel office, would take effect retroactively from January 1.

Preh had sales of some DM220m (Dollars 132.5m) last year. It would complement Rheinmetall's automobile technology business led by Pierburg.

Rheinmetall Berlin DE Germany, EC P34 Fabricated Metal Products P3676 Electronic Resistors COMP Acquisition P34 P3676 The Financial Times International Page 22 102
(CORRECTED) International Company News: Deutsche Babcock sees fall in earnings Publication 930316FT Processed by FT 930322 By ARIANE GENILLARD BONN

Correction (published 18th March 1993) appended to this article.

DEUTSCHE BABCOCK, the plant and engineering group, posted a 22 per cent increase in sales in the five months to the end of February but warned that overall profits for the year would be lower than expected.

Sales in the five months rose to DM2.5bn (Dollars 1.5bn), with the order backlog standing at DM8.8bn, a 22.3 per cent rise over the same period the previous year.

But Mr Heyo Schmiedeknecht, chief executive, warned that profit forecasts for the current year, which ends on September 30, would have to be 'revised downward'. He said profits would be 'closer to DM30m'. Earlier forecasts said profits could be as high as DM60m.

Mr Schmiedeknecht blamed the general recession in the industrial machines sector. He also said that core businesses in environmental technology continued to be in the red.

Net profits for the group for the 1992 fiscal year stood at DM76m however, up from DM32m the previous year. Sales for the same period reached DM7.6bn against DM7.3bn the year before.

Outstanding orders were higher than the previous year, standing at DM7.1bn against DM6.6bn. The company said it had won a contract worth DM240m to build a coal-fired plant in China.

The company said it still planned to float three subsidiaries on the German stock market this year. The plan was announced last year but had to be delayed because of the stock market turmoil, a company spokesman said.

The three subsidiaries are Balcke-Durr, Babcock-BGH and Schumag, specialists in mechanical engineering, plant and industrial technology.

The company will also pay a preferred dividend this year, but will omit to pay on common shares. Holders of preferred stock will receive DM9 a share, or three times the DM3 a share which was last paid out in 1988.

The company said it intended to turn 1.2m preferred shares into common stock this year and expected to pay a DM10 dividend for the fiscal year ending September 30 1994. The plans will be proposed to its shareholders' meeting on April 5.

CORRECTION

The Financial Times last Tuesday incorrectly reported the forecast dividend of Deutsche Babcock. The company expects to pay a dividend of DM5 (Dollars 3) on common stock for the fiscal year ending September 30 1994.

Deutsche Babcock DE Germany, EC P3443 Fabricated Plate Work (Boiler Shops) P35 Industrial Machinery and Equipment FIN Annual report P3443 P35 The Financial Times London Page 28 410
(CORRECTED) Italy's Corruption Scandal: Debt mountain still unclimbed amid turmoil Publication 930316FT Processed by FT 930322 By TRACY CORRIGAN and HAIG SIMONIAN LONDON, MILAN

Correction (published 18th March 1993) appended to this article.

THE URGENT economic problems facing Italy are being shunted to one side as a result of the political turmoil.

The greatest burden is the extremely high level of government debt. Italy's debt mountain currently accounts for around 107 per cent of the country's gross domestic product, and the government's deficit forecast of L155,000bn (Pounds 67.6bn) in 1993 is believed to be on the conservative side.

Even if the referendum on electoral reform on April 18 paves the way for a more stable government, the reform process is likely to take several months. Meanwhile, hopes generated by the deficit reduction package agreed last autumn have faded, as the political storm clouds have cast doubt over its implementation.

Italy is trapped in a vicious circle: its problem is not only the size of its debt, but the enormous burden of interest payments, due to high interest rates.

Unlike the UK, Italy has not benefited from withdrawal from the European exchange rate mechanism by cutting interest rates because, without high interest rates, it will not be able to fund its government deficit. However, unless interest rates fall, servicing of the public debt will continue to eat up a large part of government revenues.

'If you took away the cost of servicing the debt mountain, Italy would actually be running a surplus,' said Mr Andrew Roberts, Italian bond analyst at UBS Phillips & Drew.

In 1990 10-year Italian government bonds yielded 4 percentage points more than German government bonds, the same margin as existed between the inflation rates of both economies, so real returns were comparable.

Currently, 10-year Italian bonds are yielding 12.85 per cent gross, 6.3 percentage points more than comparable German bond yields, despite the fact that inflation in Germany and Italy is now running at the same rate.

As a result of the political turmoil, Italian bonds have largely failed to benefit from the recent rally in European bond prices, even underperforming bond markets such as Spain, which is also suffering from economic problems.

'If interest rates were close to where they are in Germany, that would cut the total deficit of L160,000bn by about 50 per cent,' estimates Mr Steve Major, a bond analyst at Credit Lyonnais Securities. 'A 1 per cent cut in interest rates is worth about L15,000bn a year, while 1 per cent economic growth is worth about L10,000bn.'

Of course, while interest rates remain high, the prospects of economy recovery will also be depressed.

Italy's debt financing costs have been increased further by the fall in its credit ratings from the top level of triple-A to double A by Standard & Poor's and double-A 3 by Moody's, which is considering a further downgrade. Although these ratings apply only to the country's foreign currency debt, the impact of repeated downgradings has helped push up Italy's financing costs across the board.

Even though the cost of foreign borrowing has increased, the Italian government is likely to continue to borrow in foreign currencies, with lower interest rates, when such financing is available. Most recently, Italy raised DM5bn (Pounds 2.1bn) in the Eurobond market. However, the appetite of international investors for Italian paper will remain limited during the political upheaval. Meanwhile, a recent Ecu8bn (Pounds 6.6bn) loan by the European Community provides little more than temporary respite.

CORRECTION

STANDARD & Poor's has asked us to point out that it has never accorded a triple-A rating to Italy, as was implied in a report on March 16, 'Debt mountain still unclimbed amid turmoil'. It rated Italy double-A plus until March 2 1983, when the rating was lowered to double-A.

IT Italy, EC P9311 Finance, Taxation, and Monetary Policy P9611 Administration of General Economic Programs ECON Economic Indicators P9311 P9611 The Financial Times London Page 5 625
International Company News in Brief: Union Bank of Finland Publication 930316FT Processed by FT 930317 By REUTER HELSINKI

UNION Bank of Finland, the banking arm of Unitas, may incur up to FM150m (Dollars 24.6m) in credit losses if the debt restructuring of Polar-Yhtyma fails, Reuter reports from Helsinki.

Union Bank of Finland FI Finland, West Europe P6021 National Commercial Banks COMP Company News P6021 The Financial Times International Page 22 70
International Company News in Brief: Rodamco Property Publication 930316FT Processed by FT 930317 By REUTER ROTTERDAM

RODAMCO Property, the investment fund, said its 1992-93 dividend would probably be slightly higher than its net per share earnings of Fl 3.19, Reuter reports from Rotterdam.

The company expects the dividend to be higher than the 1991/92 dividend of Fl 3.40.

Rodamco Property GB United Kingdom, EC P6726 Investment Offices, NEC COMP Company News P6726 The Financial Times International Page 22 78
International Company News in Brief: Fokker Publication 930316FT Processed by FT 930317 By REUTER AMSTERDAM

FOKKER, the Dutch aircraft maker, said it was deferring publication of its 1992 results until April 2, pending official confirmation that the takeover by Deutsche Aerospace is going ahead, Reuter reports from Amsterdam.

Fokker had originally slated results for March 18.

The company, hard hit by the slump in orders for new airliners, is expected to announce in the next week or so a big cutback in production and jobs.

Fokker NL Netherlands, EC P3721 Aircraft COMP Company News P3721 The Financial Times International Page 22 101
International Company News in Brief: Pizza Hut International Publication 930316FT Processed by FT 930317 By REUTER PARIS

PIZZA HUT International has formed a 50-50 joint venture in France with the pizza delivery business Spizza 30, Reuter reports from Paris.

Pizza Hut said the venture, which is subject to French government approval, would cover more than 70 outlets and represent annual turnover of FFr350m (Dollars 62.27m). Pizza Hut International has 17 wholly-owned restaurants in France.

Pizza Hut International Spizza 30 FR France, EC P5812 Eating Places COMP Joint venture P5812 The Financial Times International Page 22 95
Mongols study a Japanese model Publication 930316FT Processed by FT 930317 By ROBERT THOMSON TOKYO

HAVING emerged from seven decades of communism, Mongolia has sent a group of parliamentarians to Tokyo to study whether the scandal-prone Japanese political system should be copied by a country whose voters are mostly nomadic herders.

The timing of the Mongolians' study tour has let its 10 members witness the indictment for tax evasion of Mr Shin Kanemaru, fallen from grace as the all-powerful fixer of Japanese politics and now in a Tokyo detention centre.

Mr Kanemaru's plight and the durability of the ruling Liberal Democratic party have fascinated officials from the Mongolian People's Revolutionary party, which recently renounced its communist past and likes to see itself as Mongolia's LDP. Playing to a pastoral audience during a recent election campaign, the MPRP promised '104 calves for every 100 cows'.

'We are very interested in the contradictions that created such widespread corruption,' said Mr Batsuuri, the party secretary. 'We are also very interested in the cleansing process that allows the Japanese political machine to go on working.'

Mongolian officials have taken note of the US political system and are interested in British and German traditions of democracy, but Mr Batsuuri said that Japan holds special appeal because it is an economic and democratic success story in an Asian setting.

The Revolutionary party describes itself as a 'social democratic' party and is one of 'nine or ten parties' in Mongolia: the number has fluctuated with short-lived coalitions and even shorter-lived parties sprouting each month since the country's democratisation began three years ago.

Mr Hulan, international secretary of the Mongolian National Democratic party, the largest opposition group in the Great Khural, the Mongolian parliament, said the delegation wants to examine privatisation methods and the Japanese tax system. The interest in tax has more to do with sliding scales than the alleged evasion of Mr Kanemaru. 'We have found Japanese politicians and bureaucrats to be very open about their problems,' Mr Hulan said.

The Mongolians are intrigued by the LDP's factions but amused that their disputes have nothing much to do with ideology. According to Mr Batsuuri, the Revolutionary party has factions but they have 'an ideological base' whereas, in Japan, 'factions are more tied to political personalities'.

Mr Batsuuri said that the Japanese experience does show the advantage of 'consensus-style politics'. The English word 'consensus' has recently entered the Mongolian vocabulary, as there was not much need for the concept after the country's communist revolution in 1921.

MN Mongolia, Asia P9121 Legislative Bodies GOVT Government News P9121 The Financial Times International Page 9 434
Brussels to seek fresh impetus for growth package Publication 930316FT Processed by FT 930317 By LIONEL BARBER BRUSSELS

THE European Commission is considering fresh measures to stimulate growth because the response from EC member states remains inadequate, Mr Henning Christophersen, economics commissioner, said yesterday.

Mr Christophersen said after a meeting of EC finance ministers in Brussels that the Commission may put forward new ideas on promoting investment and job creation at the EC summit in Copenhagen in June. 'More needs to be done,' he said.

The Danish presidency of the EC has called for a 'jumbo' meeting of finance ministers from the Twelve and the six members of the European Free Trade Area on April 19 in Luxembourg. The aim is to hitch a pan-European effort to the US recovery in an effort to stem rising unemployment which is undermining public confidence in the EC.

But only five states - Spain, Germany, Ireland, Portugal, and Denmark - have put plans to the Commission to bolster the growth package. EC officials said yesterday that they looked forward to the UK contribution in today's budget.

At the meeting in Brussels, finance ministers hailed the long-awaited solidarity pact between the central government and Lander to finance German unification. 'It will pave the way for lower interest rates not just in Germany but also in the rest of the EC,' said Mr Christophersen. Lower German interest rates are vital if the EC is to attain the 3 per cent growth needed to halt unemployment, expected to rise to 17m in the EC this year.

The EC growth initiative combines a modest Community effort to promote lending to small and medium-sized companies through a new European investment fund and greater flexibility in European Investment Bank lending for infrastructure. But the main burden lies in supply-side measures by member states.

Separately, EC member states approved an ambitious convergence programme put forward by the Greek government.

QR European Economic Community (EC) P9611 Administration of General Economic Programs GOVT Government News P9611 The Financial Times International Page 2 339
World News in Brief: Bombay bombs defused Publication 930316FT Processed by FT 930317

Two 20kg bombs were defused in Bombay as India's commercial capital went back to work three days after a series of blasts killed 250 people.

ID Indonesia, Asia P9229 Public Order and Safety, NEC GOVT Government News P9229 The Financial Times International Page 1 56
Iranian jets 'bomb Kurdish hospital' Publication 930316FT Processed by FT 930316 By REUTER PARIS

THE WIFE of French president Francois Mitterrand, Mrs Danielle Mitterrand, said yesterday at least six Kurdish civilians were killed when Iranian aircraft bombed a French-run hospital on the Iran-Iraq border at the weekend, Reuter reports from Paris. Mrs Mitterrand, head of a privately-funded human rights group said more bodies were being sought at Raniya after air raids on Saturday and Sunday.

IQ Iraq, Middle East P8062 General Medical and Surgical Hospitals PEOP Personnel News GOVT Legal issues P8062 The Financial Times London Page 9 97
N Korea warns of war 'at any time' Publication 930316FT Processed by FT 930316 By JOHN BURTON

NORTH KOREA, facing strong international condemnation over its abrupt withdrawal from the nuclear Non-Proliferation Treaty, heightened the tension yesterday by declaring that war could break out 'at any time'.

However, the new South Korean government of President Kim Young-sam appeared to warn western allies not to react rashly to North Korea's decision to pull out of the NPT and drive Pyongyang into deeper isolation, which could provoke a military response.

Mr Ri Tcheul, North Korean ambassador to the United Nations in Geneva, said Pyongyang had ceased to grant visas to foreigners. He claimed that in the current US-South Korean 'Team Spirit' military exercises, bullets and shells were being fired 'towards our side'.

'If we respond to it, it will mean a war and this war cannot but be an all-out war,' Mr Ri said. 'That is why we are stressing that a hair-trigger situation has been created which could lead to an outbreak of war at any time.'

In Seoul, President Kim said: 'We never want North Korea to be isolated internationally nor do we want to inflict suffering on them.' He emphasised that a diplomatic solution should be found.

Foreign Minister Han Sung-joo told the National Assembly: 'We must prevent an armed conflict on the Korean peninsula at all costs. . . We don't want the situation to go to extremes because of the North Korean step.'

Mr Han said South Korea was seeking the help of China, which retains links with North Korea, to persuade Pyongyang to reverse its decision before the issue reaches the UN Security Council. Beijing has indicated it is displeased by the North Korean action.

In Washington, President Bill Clinton said he was disturbed by North Korea's withdrawal from the nuclear treaty, but hoped it would 'reconsider its position'.

The International Atomic Energy Agency in Vienna will hold an emergency meeting on Thursday to discuss North Korea's refusal to allow inspections of two sites suspected of being military nuclear facilities.

KP North Korea, Asia KR South Korea, Asia P9721 International Affairs GOVT Government News P9721 The Financial Times London Page 9 363
Peace cost put at Dollars 1.55bn Publication 930316FT Processed by FT 930316 By MICHAEL LITTLEJOHNS, UN Correspondent and REUTER NEW YORK, ADDIS ABABA

THE peacekeeping operation in Somalia that the United Nations is proposing to begin on May 1, replacing most of the US troops there, will cost Dollars 1.55bn (Pounds 1.1bn) in the initial 12-month period, according to an estimate given to the Security Council yesterday.

This is more than the official estimate of Dollars 1.41bn for Cambodia, now the most expensive such UN enterprise. However, the final Cambodian bill is expected to be nearer Dollars 2bn.

Mr Boutros Boutros Ghali, the UN secretary general, based the figures for Somalia on a military force of 20,000 with 8,000 additional logistical support staff, plus about 2,800 civilian personnel.

In his report he proposed that the General Assembly, which would have to approve the budget, declares this to be an expense of the entire organisation shared by all 180 member states, with the US the biggest contributor.

The cost of the military component of the operation was placed at Dollars 836m, with an additional Dollars 180m for air operations.

It would bring UN peacekeeping expenses for 13 operations this year to a total of Dollars 4.205bn, about four times the regular budget.

Somalia's feuding factions, clan elders, and religious leaders began yesterday what has been billed as a 'last chance' to salvage their wrecked nation, Reuter adds from Addis Ababa.

SO Somalia, Africa P9711 National Security P9721 International Affairs GOVT Government News P9711 P9721 The Financial Times London Page 9 258
India PM accused of cover-up Publication 930316FT Processed by FT 930316 By REUTER NEW DELHI

India's parliamentary opposition party, the Hindu nationalist Bharatiya Janata Party (BJP), yesterday accused Mr PV Narasimha Rao, prime minister, of a cover-up over a spate of bomb blasts in Bombay which killed 250 people and demanded his resignation, Reuter reports from New Delhi.

ID Indonesia, Asia P9229 Public Order and Safety, NEC GOVT Government News P9229 The Financial Times London Page 9 76
ANC calls for jail deaths probe Publication 930316FT Processed by FT 930316 By REUTER JOHANNESBURG

The African National Congress called yesterday for an immediate investigation into the deaths of detainees in South African police custody after another suspect was found dead, the ninth this year, Reuter reports from Johannesburg.

The suspected robber was found dead in a cell on Sunday after being arrested following a beating by security guards at a shopping centre near Johannesburg, police said.

ZA South Africa, Africa P9229 Public Order and Safety, NEC PEOP Personnel News P9229 The Financial Times London Page 9 96
Saudi Arabia holds Islamic leader Publication 930316FT Processed by FT 930316 By REUTER AMMAN

Saudi Arabia has arrested the head of a radical Islamic group and three of his aides while they were in the kingdom on a Moslem pilgrimage, according to an Islamic Jihad official, Reuter reports from Amman.

Sheikh As'ad Bayyud al-Tamimi, leader of Islamic Jihad (Jerusalem), said Saudi security agents seized Mr Fayez al-Asswad, the leader of another Islamic Jihad splinter group called the Islamic Jihad Movement for the Liberation of Palestine (al-Aqsa Battalions), and three of his aides in Jeddah last week.

SA Saudi Arabia, Middle East P8661 Religious Organizations PEOP Personnel News GOVT Legal issues P8661 The Financial Times London Page 9 116
Iranian jets 'bomb Kurdish hospital' Publication 930316FT Processed by FT 930316 By REUTER PARIS

THE WIFE of French president Francois Mitterrand, Mrs Danielle Mitterrand, said yesterday at least six Kurdish civilians were killed and many hurt when Iranian aircraft bombed a French-run hospital on the Iran-Iraq border at the weekend, Reuter reports from Paris.

Mrs Mitterrand, head of the privately-funded human rights group France-Libertes, added that searches were under way for more bodies in the debris of the hospital at Raniya after air raids on Saturday and Sunday.

She said the hospital was on Iraqi soil, in an area controlled by the rebel Democratic Party of Iranian Kurdistan (PDKI) and inside the Western allies' air exclusion zone set up to protect Iraqi Kurds.

IQ Iraq, Middle East P8062 General Medical and Surgical Hospitals PEOP Personnel News GOVT Legal issues P8062 The Financial Times London Page 9 145
UN to enter uncharted territory in Somalia: Multinational force will have to impose law and order in a political vacuum Publication 930316FT Processed by FT 930316 By LESLIE CRAWFORD

UNITED NATIONS troops preparing to take over command from the departing US Marines in Somalia in May face a near-impossible task.

With most of the country still at the mercy of warring clans and armed bandits, the 28,000-strong multinational force will be required to impose law and order in a political vacuum.

This is uncharted territory for the UN. The mandate of the new operation, code-named Unosom II, will have to go beyond the first small 400-strong task force, sent to monitor a non-existent ceasefire in Mogadishu, and even beyond the US-led military intervention in December, which secured a short breathing space for aid agencies to reach starving Somalis outside the capital.

Commanders of Unosom II are pressing to be given active rules of engagement to disarm warlords and bandits, who continue to loot and pillage with impunity. However, they are aware that military intervention is not a panacea for the inability of Somalis to start the painful process of national reconciliation after the traumas of dictatorship and a two-year civil war.

'If you pulled out the foreign troops and tanks, this place would fall apart,' says Gen Imtiaz Shaheen, the departing commander of Unosom I. 'Unless the Somalis begin to address their political and social problems, UN intervention will lead to a new form of colonisation.'

The absence of a Somali government has already created a de facto administration run by the UN and US task forces and the international aid agencies. A 'cabinet' meets every morning at 8am at the fortified Unosom compound in Mogadishu to discuss the security situation and plan relief work.

The collapse of the economy has also transformed the aid agencies into the country's main employers and benefactors. The UN's World Food Programme estimates that more than 2m Somalis, one third of the population, are dependent on relief agencies for food, water, health care, seeds for planting, and agricultural tools.

And while the presence of the US-led joint task force afforded military protection for immediate famine relief work, it has also created a new security problem for aid agencies. They have become soft targets for bandits who used to be employed in the protection racket business before the US Marines put an end to this lucrative source of income.

'Before the US Marines landed,' says Mr Rhodri Wynn-Pope, relief co-ordinator for southern Somalia with the international agency Care, 'we were being absolutely ripped off'. Care was paying Dollars 150,000 (Pounds 106,000) a month to security gangs to guard its food stocks at the port. Other 'contractors' had to be paid to guard food convoys, to negotiate road blocks, and to prevent food from being looted at its destination.

Military intervention broke the cycle of extortion, but created an underworld of armed thieves who have murdered three foreign aid workers in the past two months.

'We feel less secure now,' says Mr Ian MacLeod at Unicef. 'Aid agencies were not targets last year.' Aid workers, he explains, cannot venture outside their compounds without armed escorts. All agencies have imposed a 6pm curfew.

Aid agencies believe that Unosom II's mandate is doomed unless it tackles the problem of disarmament and rehabilitation simultaneously. 'The banditry and lawlessness in Somalia is a social problem,' says Mr Wynn-Pope. 'Warlords can talk their men back to the barracks, but bandits need to be given productive jobs to give up their guns.'

With Somalia's famine emergency over, the UN and aid agencies are beginning to concentrate on the daunting task of resettling almost 2.5m Somalis displaced by the civil war. Of these, 1m people are sitting in refugee camps outside Somalia. Neither the military nor the humanitarian agencies of the UN have ever undertaken a logistical task of this size.

Relief agencies, critical of the UN's performance in Somalia before the arrival of the US-led task force, fear that the country will slide back into anarchy with the pull-out of US troops.

'The US armed forces have a cohesive administrative and logistical command chain that the UN finds difficult to match,' says Mr Wynn-Pope, himself a former British army officer. 'US troops were seen as the tough guys with big guns, whereas the UN has little credibility with the Somalis.'

Mr Jamie McGoldrick, deputy field director of Save the Children Fund UK, goes further: 'The UN does not understand the scale or the complexity of the Somali problem. They think it is a six-month job, whereas it may take 10 to 15 years to restore peace to Somalia.'

SO Somalia, Africa P9711 National Security P9721 International Affairs GOVT Government News P9711 P9721 The Financial Times London Page 9 795
Keating puts off poll on republic Publication 930316FT Processed by FT 930316 By KEVIN BROWN SYDNEY

AUSTRALIA'S re-elected Labor prime minister, Mr Paul Keating, yesterday ruled out a referendum on the abolition of the monarchy until after the next election, due in mid-1996.

Mr Keating said Labor remained convinced that Australians would not be 'masters of our own destiny' until the 205-year-old link with the British crown had been broken.

However, constitutional change would require a long period of public debate and negotiations with state governments, which would inevitably take several years.

Mr Keating hoped the process could be completed by 2001, the centenary of the federation of the continent's six British colonies, which many Australians regard as the foundation of modern Australia.

The prime minister's comments are in line with Labor's 12-year-old commitment to gradual progress towards the abolition of the monarchy, which was confirmed by the party's policymaking conference in 1991.

Mr Keating announced last month that Labor would appoint a committee to draw up plans for the transition to a republic, but the party did not seek to make the future of the monarchy an election issue.

Confirmation of the timetable for constitutional change will disappoint the republican movement, which gained strength last year after British criticism of Mr Keating's handling of a visit by the Queen.

Republicans will also criticise Mr Keating for backing down on a promise to remove the British union flag from the Australian flag. The prime minister said a change of flag would have to await the establishment of the republic.

In his first post-election press conference, Mr Keating moved to patch up relations with Britain. He said Mr John Major, the British prime minister, had congratulated him on Labor's election victory.

AU Australia P9111 Executive Offices GOVT Government News P9111 The Financial Times London Page 8 304
Vietnam Communist party sees writing on the wall: Observers believe the country will have to abandon Marxism-Leninism in a few years Publication 930316FT Processed by FT 930316 By VICTOR MALLET

THE STATUE of Lenin still stands tall in central Hanoi. A few blocks away you can go jogging around the lake in what is still called Lenin Park, or sit on a bench and read stories in the Vietnamese Communist Party newspaper about fraternal visits by fellow-communists from neighbouring Laos.

Political scientists have noted with surprise how third world communist regimes, such as the one in Vietnam, have survived the collapse of their erstwhile patrons in the Soviet Union and eastern Europe.

Beneath the surface, however, Vietnamese politics is undergoing a change so profound that Vietnamese and foreign observers believe the ruling party will be obliged to abandon Marxism-Leninism, transform itself into a broad-based 'nationalist' front, and perhaps even permit opposition parties - all within a few years.

Party leaders, under Mr Do Muoi, their 76-year-old general secretary, nowadays barely mention communism or socialism in their speeches. The 2m-strong party, undermined by the collapse of international communism, finds it hard to recruit new members or to persuade existing members to attend meetings.

Since the late 1980s, Vietnam has in any case vigorously pursued a policy of doi moi or 'renovation', a code word for replacing socialist economics with capitalism, foreign investment and the tenets of the free market.

"When the Communist Party declared its acceptance of the free market economy, it meant that this party is not truly a communist party; they have dropped the communist system,' says Mr Phan Dinh Dieu, a mathematician in Hanoi whose views are tolerated by the party and who is regarded by foreign diplomats as a sort of licensed dissident. 'The result is that the party is transformed from a communist party into a party of power.'

Although it is widely accepted that few Vietnamese, even party members, still believe in communist ideology, the party has tried to smooth the way for traditionalists by suggesting lamely that sharp changes of direction can be explained by the addition of the thoughts of Ho Chi Minh (the communist father of Vietnamese independence in the 20th century) to the policy of standard Marxism.

'Our slogan is: 'Let the people become rich',' says Mr Tran Kien, deputy editor of the orthodox party newspaper Nhan Dan (The People). 'Now we carry out the market economy but regulated by socialism. It means we don't give up Marxism-Leninism but continue to carry out this ideology including Ho Chi Minh's teachings.'

The crucial question for Vietnam is whether the ruling party can manage a peaceful transformation of the political system by steering a path between resentful communist hardliners and Vietnamese liberals - especially those living in the US - who demand the rapid creation of a multi-party democracy.

Vietnam's economic performance is certainly helping the transition. Revised figures for gross national product show the economy grew by a 8.3 per cent last year, and the country's 70m inhabitants, although still desperately poor, are becoming visibly more prosperous.

Vietnamese officials say that Russia and other eastern European states made grave errors by implementing democratisation before economic reform, a mistake which they believe led to anarchy and a consequent inability to pursue any economic reform at all: it is hard to find diplomats in Hanoi who disagree with that analysis.

The flexibility of the Vietnamese Communist party, its genuine nationalist credentials (in contrast to some of the Moscow-installed parties of eastern Europe) and the absence of any organised opposition to the cautious liberalisation it is pursuing, also work in favour of peaceful political development. To counter the threat of opposition from Buddhist monks, the party is even said to have spread rumours that Mr Muoi is secretly a Buddhist himself and has been seen in a pagoda.

'They (the Communist party) know it's over, and they are even discussing among themselves the possibility of changing the name,' says one Ho Chi Minh City businessman who used to work for the US-backed South Vietnam government before the communist victory in 1975.

'They know and the people know it's over, but the idea of a collapse scares people. They are afraid of bloodshed and chaos, so even the most anti-communist people want slow change.'

But the party's attempts to manage a peaceful transition to a post-communist system will probably not go unchallenged. Unemployment, estimated at about 3.5m in urban areas, and widespread corruption in national and local government are both breeding resentment. Already Vietnamese who must now pay school fees can be heard complaining that the good aspects of communism - free education, for example - are being thrown out with the bad.

Party spokesmen are evasive when asked about the future, pointing to the fact that the 1992 constitution enshrines the party as 'the force leading the state and society', and falling back on the official policy of 'democratisation within the one-party system'.

Others are more forthright about the imminent demise of the dictatorship of the single party. Mr Dieu, the free-talking mathematician, believes that the possibility of alternative political parties could arise in as little as two or three years. A diplomat in Hanoi says bluntly: 'In five years the (Communist) party will be nationalist or social democrat.'

A member of the party, a retired senior civil servant, explains how the party allowed a discussion on political pluralism a year ago. 'Now it's finished; it was decided that it was not a good idea for Vietnam,' he says. 'But it's not forgotten.'

VN Vietnam, Asia P8651 Political Organizations P9121 Legislative Bodies GOVT Government News P8651 P9121 The Financial Times London Page 8 947
Call for rapid Chinese reform revives fears of over-heating Publication 930316FT Processed by FT 930316 By TONY WALKER BEIJING

MR LI PENG, China's prime minister, yesterday demanded even quicker reform of the Chinese economy, which grew by almost 13 per cent last year, prompting concerns about the danger of overheating.

Speaking at the opening session of the National People's Congress, China's parliament, Mr Li outlined a sweeping programme of economic change aimed at strengthening market reforms and re-structuring the country's bloated state sector.

But in a clear reference to concerns about bottlenecks in the economy due to extremely rapid growth in the past year, he also urged that a 'basic balance' be struck between supply and demand.

China's economic planners fear renewed inflationary pressures such as those that undermined reforms in the 1980s. Indications of pressure on prices have already begun appearing in urban centres where double-digit inflation is being recorded.

Mr Li's remarks about the economy, which accounted for about one-fifth of a two-hour speech, amounted to a careful endorsement of reforms initiated by Mr Deng Xiaoping, China's supreme leader, who was not present at the NPC, even though he is a delegate.

Mr Li has tended to be identified with conservatives who have not shown boundless enthusiasm for Mr Deng's market-oriented reforms.

Mr Li also said that:

The economy, which surged 12.8 per cent last year, would continue to grow at 8 or 9 per cent annually, for the rest of the 1991-95 five-year plan. Growth had averaged 7.9 per cent for the past five years.

Continued growth of 8 per cent to 9 per cent would ensure that China achieved well ahead of schedule its target of quadrupling Gross National Product between 1980 and the year 2000.

China planned to slash its giant bureaucracy by about 25 per cent, and sharply reduce the number of government departments. Little detail was provided as to how this would be achieved.

China would give particular attention in the next five years to strengthening infrastructure, service industries and agriculture.

Mr Li, a cautious 64-year-old Soviet-trained technocrat who seems certain to be endorsed for another five-year term as premier, was unrepentant about the 1989 Tiananmen massacre in which hundreds of pro-democracy activists were shot by soldiers called in to quell the protests in and around the city's central square.

'Domestically, in late spring and early summer of 1989, a counter-revolutionary rebellion caused turmoil in Beijing,' he declared, adding that China had overcome 'numerous diff-iculties' in maintaining social and political stability and promoting economic and social development.

'Our great socialist motherland will stand firm as a rock in the east forever,' said Mr Li who is blamed by many Chinese for ordering the bloody crackdown on the pro-democracy protesters.

China's NPC will run for about two weeks and, apart from endorsing revised economic growth targets, will also approve the election of new leadership personnel, including the appointment of a president or head of state - a post expected to be filled by party boss, Mr Jiang Zeming.

CN China, Asia P9121 Legislative Bodies P9611 Administration of General Economic Programs GOVT Government News ECON Gross national product P9121 P9611 The Financial Times London Page 8 530
NY Post files for protection Publication 930316FT Processed by FT 930316 By KAREN ZAGOR NEW YORK

THE New York Post yesterday filed for bankruptcy protection and failed to publish amid a newsroom mutiny over plans to sack about 270 people by the paper's latest potential publisher, Mr Abraham Hirschfeld.

According to a spokesman for Mr Peter Kalikow, the Post's current owner, yesterday's Chapter 11 joint filing was part of Mr Hirschfeld's acquisition agreement. The bankruptcy petition would freeze the Post's debts and help the paper continue operating.

Property investor Mr Hirschfeld was quoted as saying that he was more interested in the Post's Manhattan building than the paper itself.

New York Post US United States of America P2711 Newspapers COMP Company News P2711 The Financial Times London Page 6 129
Winter storms kill over 100 in eastern US Publication 930316FT Processed by FT 930316 By NIKKI TAIT and LAURIE MORSE NEW YORK, CHICAGO

BUSINESSES, commuters and home-owners along the eastern US seaboard struggled to return to normality yesterday after a winter storm left a trail of devastation in its wake and cost up to 115 lives.

In Florida, hard-hit by Hurricane Andrew last August, the storm system spawned about 50 tornadoes; in the New Jersey, Connecticut and New York state region around 300,000 homes were left without electricity and up to 17ins of snow were recorded.

In New York hundreds of motorists spent yesterday morning digging parked cars out from mountainous snow-drifts, many created by the weekend's snow-ploughs.

East Coast airports were crowded with people trying to get away after being stranded through the weekend, when the nation's air transport system suffered one of its worst-ever disruptions.

Major motorways were reopening yesterday, but many smaller roads remained blocked, with some travellers still snowbound.

Yesterday afternoon, A M Best, the US rating agency which specialises in the insurance sector, estimated that the storm produced about Dollars 800m in insured damages. However, some companies said it was too soon to attach a precise number to claims.

'We just don't know at this stage,' said Allstate, the large Illinois-based insurer. The American Insurance Association, whose property-claims division provides industry-wide estimates of catastrophe losses, also said it was only just beginning to receive reports from member firms.

A M Best suggested the bulk of damage would come in the southeastern states and central Florida. It estimated that the storm which hit the Northeast in December was probably more damaging to that region. The December storm caused more widespread flooding and coastal damage, and resulted in around Dollars 650m of insured claims.

The latest disaster comes after a run of heavy catastrophe losses for big US property-casualty insurers and will exasperate the financial pressures on the industry. The bomb blast under New York's World Trade Centre complex this month is estimated to have caused over Dollars 1bn in insured damages, while Hurricane Andrew produced a record-breaking Dollars 16bn-worth of claims.

In Florida, high winds battered grapefruit and orange crops, and frosts on Sunday and yesterday caused scattered damage to the fragile flowers that form next year's harvest, according to Mr Bobby McKown, of Florida Citrus Mutual, the state's largest growers' organisation. The damage was 'minor' in comparison to storms and freezes that devastated Florida citrus in the 1980s, he said.

Storms lift sugar price, Commodities Page

US United States of America P6331 Fire, Marine, and Casualty Insurance P99 Nonclassifiable Establishments RES Natural resources INS Insurance P6331 P99 The Financial Times London Page 6 447
Brazil to resume state sell-offs Publication 930316FT Processed by FT 930316 By CHRISTINA LAMB RIO DE JANEIRO

SELL-OFF dates and minimum prices for two state companies have been announced by Brazil's President Itamar Franco in a clear sign that the privatisation programme is to resume after a four-month delay.

Poliolefinas, a petrochemicals company, will be auctioned on Friday at the minimum price of Dollars 86.1m (Pounds 60.6m). The sale of the National Steel Company has been scheduled for April 2 with a minimum price of Dollars 1.6bn, despite complaints by its president that it has been undervalued.

The decision to go ahead with the sales represents a policy turnaround for Mr Franco, who suspended the programme in December after making frequent criticisms.

Only two weeks ago Mr Antonio Barros de Castro, who as head of the National Development Bank was responsible for the programme, resigned, accusing the president of deliberately blocking the process.

Last week Mr Eliseu Resende, the new finance minister, announced a 'deepening and acceleration' of the programme as one of his central policies. Ministry officials are even discussing with Mr Franco the sale of assets such as Vale do Rio Doce, the state mining company, and Telebras, the telecommunications company.

Mr Franco's change of heart was apparently motivated by the discovery of the privileges and high salaries enjoyed by the state sector and the considerable costs to the government. This year the state sector will cost Brazil an estimated Dollars 19bn and pay back a maximum of Dollars 10bn in taxes.

Mr Fernando Antonio Habda, a member of the economic policy team, said: 'The President wants to boost government credibility and raise money for social programmes and buying back debt. He now realises that the only option is privatisation.'

It is not yet clear what rules will govern the forthcoming sales to meet Mr Franco's concerns over issues such as the currency used in the auctions. Only 1 per cent of the Dollars 4bn raised in sell-offs by the former government was in cash, the rest mainly consisting of domestic debt swapped at par.

Poliolefinas National Steel BR Brazil, South America P2911 Petroleum Refining P3312 Blast Furnaces and Steel Mills P9611 Administration of General Economic Programs GOVT Government News P2911 P3312 P9611 The Financial Times London Page 6 381
Canada's Tories look to new generation for leader Publication 930316FT Processed by FT 930316 By BERNARD SIMON TORONTO

CANADA'S governing Conservatives, seeking to reinvigorate themselves before this year's general election, are shedding almost an entire generation of political veterans.

Since Prime Minister Brian Mulroney announced on February 24 he was resigning as party leader, a string of senior cabinet ministers have declined to enter the race to succeed him.

Several have also said they will retire from politics at the election, expected in September or October. The rash of departures is partly a recognition by the old guard that the Progressive Conservative party needs fresh faces at the top if it is to overcome deep voter hostility. They also reflect the commanding lead built up by Ms Kim Campbell, defence minister.

The latest Mulroney veterans to pull out of contention for the leadership are Mrs Barbara McDougall (external affairs), who is quitting politics, and Mr Bernard Valcourt (employment and immigration).

Other ministers who have dropped out of the race include Mr Don Mazankowski (deputy prime minister and finance), Mr Michael Wilson (trade and industry), and Mr Benoit Bouchard (health).

Mr Joe Clark, prime minister briefly in 1979-80 and who most recently spearheaded efforts to draw up a new constitution, also plans to leave politics.

Mr Mulroney's successor will be chosen at a convention in Ottawa on June 13. Senior party officials, including Mr Mulroney, are quietly encouraging members of the Tory caucus to throw their names into the ring, partly to generate public interest and partly to deflect unremitting scrutiny of Ms Campbell.

So far, only Mr Patrick Boyer, a respected but little-known backbencher, has formally announced his candidacy.

Two youthful cabinet ministers, Mr Perrin Beatty, who holds the communications portfolio, and Mr Jean Charest, the environment minister, are still expected to enter the race.

CA Canada P8651 Political Organizations PEOP Personnel News P8651 The Financial Times London Page 6 319
Commodities and Agriculture: Venezuelan oil deal for BP Publication 930316FT Processed by FT 930318 By DEBORAH HARGREAVES

BRITISH PETROLEUM has agreed with Venezuela's state oil company PDVSA to bring the Pedernales oilfield in the Orinoco delta back into production. The field has been shut since 1985. BP believes it can bring it back into production soon with output rising to 20,000 b/d by 1997.

The agreement marks the first upstream involvement of a foreign oil company in Venezuela since 1976.

British Petroleum Petroles de Venezuela VE Venezuela, South America P013 Field Crops, Ex Cash Grains P013 The Financial Times London Page 38 99
International Company News: Brierley sells US motel stake Publication 930316FT Processed by FT 930318 By TERRY HALL WELLINGTON

BRIERLEY Investments, the New Zealand-based hotels and investment group, is selling its 18.6 per cent stake in La Quinta Motor Inns, a US motel group, for NZDollars 112.5m (USDollars 59m).

Brierley paid NZDollars 82m for the stake. The sale is part of the investment group's strategy to withdraw from the US and reorientate itself on Asia, Australian and New Zealand.

Brierley Investments La Quinta Motor Inns US United States of America P7011 Hotels and Motels COMP Disposals P7011 The Financial Times London Page 29 101
International Company News: Loss deepens at Brazilian clothier Publication 930316FT Processed by FT 930318 By BILL HINCHBERGER SAO PAULO

SAO PAULO Alpargatas, Brazil's largest footwear and clothing manufacturer, suffered a loss of Dollars 83.2m last year, compared with a deficit of Dollars 37.7m the previous year.

Last year's sales of Dollars 479.2m were down by 11 per cent, with exports accounting for Dollars 33.3m.

'The loss was principally due to lower sales volumes and tighter margins, exacerbated by the adjustment of stocks to lower market values and costs related to company restructuring,' said Mr Diego J. Bush, Alpargatas chairman, in a stockholder statement.

Embratel, the state-controlled long-distance telecommunications company, announced profits of Dollars 240m in 1992, up from Dollars 153.3m in 1991.

The company invested Dollars 528m, 80 per cent of which was funded without borrowing. It plans Dollars 700m of new investment this year, including the laying of optic fibre transmission lines between some of Brazil's major cities. Usiminas, the steel producer privatised in 1991, announced profits of Dollars 123.4m in its first full year as a privately-owned company. The result was up by 95 per cent from 1991.

Sao Paulo Alpargatas Embratel Usiminas BR Brazil, South America P314 Footwear, Ex Rubber P23 Apparel and Other Textile Products P481 Telephone Communications P331 Blast Furnace and Basic Steel Products FIN Annual report P314 P23 P481 P331 The Financial Times London Page 29 232
The Lex Column: Olivetti Publication 930316FT Processed by FT 930318

Olivetti's rights issue has the look of a company sticking its finger in the dyke. The L900bn raised has to be set against a declared loss last year of L650bn and provisions for restructuring over the last three years of L700bn. While the issue will wipe out net debt, computer prices are still falling, so further cost-cutting will surely be necessary. Even Olivetti has tacitly accepted that investors may not be keen by pitching the issue at the deepest discount legally allowed.

Larger and more august companies than Olivetti have been humbled by the collapse in computer manufacturing margins. While further price falls may be limited as worldwide capacity is cut, it is hard to see European companies becoming the lowest cost producers against Far Eastern competition. And with most of the value being added at the chip level by US firms, assemblers such as Olivetti will struggle. The future of European production is thus far from certain. Even Olivetti's alliance with DEC may not give it much muscle in the expanding Risc chip market. DEC, meanwhile, can contemplate its purchase of a 4 per cent stake last summer at L8,000 per share, which it can now add to by taking up its rights at L1,000 each.

Olivetti and Cie IT Italy, EC P357 Computer and Office Equipment CMMT Comment & Analysis P357 The Financial Times London Page 22 239
UK Company News: Thirst for Vimto prompts 8% gain at JN Nichols Publication 930316FT Processed by FT 930318

STRONG SALES of Vimto, the fruit and herb drink, helped JN Nichols report an 8 per cent increase to Pounds 8.36m in pre-tax profits for 1992, on sales virtually unchanged at Pounds 47m.

The campaign to widen the appeal of Vimto, traditionally the favourite soft drink of Northern non-drinkers, and an increased contribution from Nichols Foods helped to offset a decline in contract canning and export sales.

The company said the Pounds 1m decline in exports, a significant proportion of which are targeted at the Middle Eastern market where Vimto is often used to break the Ramadan fast, had been due to the timing of deliveries. Ramadan had fallen later than the previous year.

The group's main export markets continued to grow, however.

In the UK, bad weather last summer had had an adverse affect on sales in the latter half of the year. Nevertheless, Vimto showed a strong improvement and the can vending business helped to increase sales.

The final dividend is increased by 10 per cent to 8.5p, for a total 1.3p higher at 13.6p. Earnings were ahead from 32.6p to 35.4p.

JN Nichols (Vimto) GB United Kingdom, EC P2086 Bottled and Canned Soft Drinks FIN Annual report P2086 The Financial Times London Page 24 224
Olivetti plans rights issue as losses rise Publication 930316FT Processed by FT 930318 By HAIG SIMONIAN MILAN

OLIVETTI, the Italian computers and office equipment group, yesterday announced a L903bn (Pounds 411m) rights issue and said it would report a sharply increased net loss of about L650bn for 1992. The cash, to be raised through new shares and convertible bonds, will be used for expansion, notably in the areas of information technology and telecommunications.

'In the short term, the money will be used to bring debt down to zero,' said Mr Carlo De Benedetti, Olivetti's chairman, whose listed CIR holding company controls the group.

Olivetti's 1992 loss, to be announced officially in May, will be nearly 50 per cent larger than the L460bn lost in 1991. Sales fell 6.8 per cent to L8,020bn and operating losses surged to L230bn from L28bn. However, more aggressive price cutting on personal computers triggered a 35 per cent rise in sales in the final quarter.

At the year-end, Olivetti's net debt stood at L960bn. The dividend will be omitted again, Mr De Benedetti said. He added that Olivetti faced further heavy restructuring costs of up to L250bn this year, as it planned to shed 3,500 more staff. The amount set aside for restructuring charges fell to L260bn in 1992 from L338bn in 1991, but the actual figure spent was L170bn higher, as it included money provided for in 1991, Mr De Benedetti said. He said the rights issue, priced at the shares' nominal value of L1,000, indicated Olivetti's determination to survive. CIR would subscribe its full quota, costing about L300bn.

Lex, Page 22

Olivetti and Cie IT Italy, EC P357 Computer and Office Equipment COMP Company News FIN Share issues P357 The Financial Times London Page 23 290
People: Lucas Publication 930316FT Processed by FT 930318

John Anthony has been appointed director and general manager - LUCAS Aftermarket Operations.

Lucas Aftermarket Operations GB United Kingdom, EC P36 Electronic and Other Electric Equipment P3542 Machine Tools, Metal Forming Types P3751 Motorcycles, Bicycles, and Parts PEOP Appointments P36 P3542 P3751 The Financial Times London Page 17 54
Parliament and Politics: PSA fraud reports rejected Publication 930316FT Processed by FT 930318 By ALISON SMITH

THE GOVERNMENT has been attempting to reassure potential purchasers of the five Building Management divisions of the Property Services Agency that suggestions of fraud made about one of the five businesses were unfounded.

Officials at the Department of the Environment were yesterday urgently talking to prospective bidders for the BM businesses, which carry out most of the maintenance and upkeep of government buildings.

BM south-east, which is the subject of the allegations, had been proven to have been involved in only minor irregularities - relating to the appointment of staff - and they did not include financial impropriety, the officials said.

The move follows press reports based on a briefing paper prepared for a PSA internal audit investigation which began in the London-based BM south-east at the beginning of the year.

The department said yesterday that the paper represented an initial list of 'suspicions and rumours' that had been put to the internal audit team, and emphasised that the investigations so far had eliminated some of the allegations. 'It is not true that contracts to the value of Pounds 20m are being questioned and there is no evidence of any security breaches,' the department said.

Mr Jack Straw, the shadow environment secretary, immediately called for the sale of BM to be suspended until investigations had been completed. They are expected to be finished in the next couple of weeks.

But the government made it clear the sale would not be postponed, and it expects to go ahead with bids from a shortlist of potential purchasers, probably in June.

The final stage of privatising the PSA was announced in late January, with expressions of interest from more than 70 businesses, including contractors, consultants, utilities and building management companies. Last week, on the deadline for preliminary bids, the department said that there was 'substantial' interest.

Property Services Agency BM Group GB United Kingdom, EC P9199 General Government, NEC GOVT Government News COMP Company News P9199 The Financial Times London Page 13 346
International Company News: Omnicom to acquire Paris agency Publication 930316FT Processed by FT 930316 By ALICE RAWSTHORN and NIKKI TAIT PARIS, NEW YORK

OMNICOM, the US marketing services group and the fourth largest advertising company in terms of worldwide billings, is expanding its European advertising interests by taking control of TBWA, the French advertising agency, through a share swap announced yesterday.

TBWA, which was founded in Paris in the early 1970s, is one of the few remaining independent European advertising networks. The company, which claims annual billings of FFr1.1bn (Dollars 196m) has offices across the continent and a small agency in the US, which has achieved a high profile for its work for Absolut vodka.

However the international advertising industry is now so competitive that life has become increasingly difficult for independents. The industry has been hit both by the recession and by the long term trend for companies to move away from conventional media advertising towards other forms of promotion.

Omnicom, which was formed in the late 1980s by the merger of the DDB Needham and BBDO advertising agencies, has been one of the beneficiaries of the industry's consolidation. The TBWA acquisition, which is expected to be finalised in mid-May, is the latest in a series of deals in which Omnicom has bought up smaller businesses.

These included the UK's Boase Massimi Pollitt agency, which Omnicom acquired in the late 1980s after the British agency fell victim to a hostile bid from a French group. Annual billings for the two existing Omnicom networks are substantially larger than those of TBWA, each standing at around Dollars 6bn.

Omnicom has long been interested in TBWA, and industry speculation about a deal has been rife. Talks between the two companies are understood to have been under way for over a year, and analysts have already suggested that by purchasing TBWA, Omnicom will obtain a strong competitive edge in the industry.

The advantage to running different agency networks under one group umbrella is that this allows an advertising company to take on new business which might otherwise conflict with existing client accounts.

TBWA International Omnicom International Inc US United States of America FR France, EC P7311 Advertising Agencies COMP Acquisition P7311 The Financial Times London Page 30 374
International Company News: Retailer seeks Chapter 11 protection after sale Publication 930316FT Processed by FT 930316 By NIKKI TAIT NEW YORK

A GROUP of US investors yesterday completed the purchase of Herman's, the US sporting goods retailer, from Britain's Isosceles group - and promptly sought protection for it from creditors under Chapter 11 of the US Bankruptcy Code.

Herman's bankruptcy filing was made in Trenton, New Jersey. It was accompanied by a prediction that the 253-store US chain would lose more than Dollars 18.5m this financial year.

Isosceles's sale of Herman's was announced last month, but no price was disclosed.

The investors include Taggart/Fasola, a New Jersey management group, and two New York investment firms, Whitman Heffernan Rhein & Co and Carl Marks & Co.

They said the Chapter 11 filing would enable Herman's to restructure its finances and operations.

The US company, with around 6,700 employees in about 40 states, has obtained a Dollars 40m loan facility from Chemical Bank. It is being made available as debtor-in-possession financing - a form of temporary funding common in bankruptcy situations. It allows the lender to rank at the forefront of the creditors' queue should the borrower eventually cease operations.

Yesterday, the investors said they expected to close or sell a 'significant number of stores' and concentrate on core markets in the north- east.

Herman's Sporting Goods Isosceles US United States of America P5941 Sporting Goods and Bicycle Shops COMP Acquisition COMP Company News P5941 The Financial Times London Page 29 249
International Company News: Swire doubles its stake in Fraser Brokers Publication 930316FT Processed by FT 930316 By RICHARD LAPPER

SWIRE Pacific, part of the Hong Kong-based aviation-to-property group, is to increase its stake in Fraser Insurance Brokers, a London insurance and reinsurance broker, to 80 per cent.

Fraser, in which Swire bought 40 per cent in 1991, will now be known as the Swire Fraser Group.

Swire will pay Fraser's existing shareholders a percentage of profits earned by the broker over the next three years in return for the extra holding. No further details of the transaction were made available.

Fraser specialises in a number of London market areas, including reinsurance, financial insurances and stop-loss policies - personal reinsurance policies bought by Lloyd's Names. The group was formed in 1986.

Swire Pacific Fraser Insurance Brokers GB United Kingdom, EC HK Hong Kong, Asia P6411 Insurance Agents, Brokers, and Service COMP Acquisition P6411 The Financial Times London Page 29 158
UK Company News: Anglia sets up joint ventures with HBO Publication 930316FT Processed by FT 930316 By GARY MEAD, Marketing Correspondent

ANGLIA TELEVISION has entered into three joint ventures with Home Box Office, a division of Time Warner, to produce and distribute television programmes and films internationally.

Under the terms of the deal, Anglia and HBO will jointly form Citadel Entertainment, which will undertake the business of Citadel Pictures, currently a division of HBO. Anglia will pay Dollars 3.5m (Pounds 2.46m) in two stages for its interest in the new venture.

At the same time Anglia will receive, also in two stages, Dollars 1.5m from HBO for a 50 per cent interest in International Television Enterprises, currently a wholly-owned subsidiary of Anglia.

HBO will also acquire a 49 per cent voting interest in Anglia Television Entertainment, a new company which will undertake activities currently performed by Anglia's film and drama department. Anglia will receive about Pounds 250,000 from HBO, representing some 50 per cent of the value of Anglia's film and drama programmes currently in development.

The joint ventures are seen by industry analysts as mutually beneficial to Anglia and HBO, which serves more than 23m pay-cable television subscribers in the US.

Anglia Television Home Box Office Citadel Entertainment GB United Kingdom, EC US United States of America P4833 Television Broadcasting Stations COMP Strategic links P4833 The Financial Times London Page 27 232
Parliament and Politics: Row on prescription charge Publication 930316FT Processed by FT 930316 By IVOR OWEN, Parliamentary Correspondent

A PROCEDURAL manoeuvre by Labour MPs forced Mrs Virginia Bottomley, the health secretary, to the government despatch box in the Commons last night to defend an increase in prescription charges.

The 50p rise - from Pounds 3.75 to Pounds 4.25 per item - is due to take effect from April 1. A Labour attempt to annul the order authorising the increase was defeated by a government majority of 60 (289-229).

Mrs Bottomley had not intended to participate in the debate, but was left with no alternative when Labour MPs refused to give permission to Dr Brian Mawhinney, the health minister, to make the opening and the closing speeches for the government.

Government claims that only those able to afford it will be required to pay the higher charge were disputed by opposition MPs.

Mr David Blunkett, shadow health secretary, described the 13 per cent increase - eight times the headline rate of inflation - as 'shameful and disgraceful'.

He called on the government to widen the categories exempt from prescription charges.

Dr Mawhinney said the increase in the prescription charges - about 10 per cent in real terms - would raise about Pounds 278m a year for the National Health Service in England.

He stressed that 80 per cent of all prescribed items were dispensed free - more than at any time since the charges were reintroduced by the Labour government in 1968.

Dr Mawhinney angered Labour MPs by saying Mr Blunkett had shown 'outrage, but no guts' because he had failed to commit a future Labour government to removing the 50p increase. The minister also emphasised that spending on the NHS was at a record, with gross provision in England standing at more than Pounds 30bn in 1993-1994.

He said this amounted to an increase of more than 61 per cent in real terms since 1979 when Labour left office, and clearly demonstrated the government's commitment to the NHS.

GB United Kingdom, EC P9431 Administration of Public Health Programs P283 Drugs COSTS Product costs P9431 P283 The Financial Times London Page 13 360
Large letting deal in West End Publication 930316FT Processed by FT 930316

THE largest letting deal in London's West End for more than two years has been agreed by McKinsey & Company, the management consultancy. It is to move its UK headquarters to Number One, Jermyn Street, part of the Criterion development at Piccadilly Circus.

McKinsey, which will move out of St James's Street, has signed a 25-year lease on the 120,000 sq ft building at a rent of almost Pounds 40 per sq ft.

McKinsey and Co GB United Kingdom, EC P8742 Management Consulting Services RES Facilities P8742 The Financial Times London Page 10 105
Manchester chess hopes boosted Publication 930316FT Processed by FT 930316

MANCHESTER'S hopes of staging the World Chess Championship between Garry Kasparov, the champion, and Nigel Short received a boost yesterday. Kasparov said the match would definitely take place in Britain and Manchester had not been ruled out.

Fide, the world chess federation, last month accepted a Pounds 1.2m bid from Manchester to stage the championship, but Short and Kasparov rejected the offer.

GB United Kingdom, EC P7999 Amusement and Recreation, NEC RES Facilities MKTS Contracts P7999 The Financial Times London Page 10 91
Clinton sees hope for Mideast peace: Rabin ready 'to take risks for peace' Publication 930316FT Processed by FT 930316 By JUREK MARTIN WASHINGTON

PRESIDENT Bill Clinton insisted yesterday there were 'a lot of reasons to be hopeful' about a resumed Middle Eastern peace process in Washington next month.

He said that he had been assured by Mr Yitzhak Rabin, the Israeli prime minister, in the course of over three hours of talks in the White House that Israel 'was prepared to take risks for peace' and that the US role was designed 'to minimise these risks'.

But neither leader was able to report a breakthrough over the fate of the 400 Palestinians deported from Israel, a stalemate which is still preventing Palestinian acquiescence to resumed negotiations.

Mr Clinton said the US stood by the UN compromise arrang-ed last month by Mr Warren Christopher, secretary of state, providing for immediate return of 100 of the deportees and the rest by the year's end. He said he had not raised the question of further Israeli concessions on the issue with Mr Rabin.

Mr Clinton conceded there were 'difficulties' in resuming the peace process. He hoped that recent violence, including the stabbing of an American immigrant to Israel, would not prove a serious obstacle.

The prime minister spoke in generalised terms of Israel's willingness to compromise, including in territorial negotiations with Syria over the Golan Heights. But he added: 'We are determined to protect our security. We are willing to compromise but compromise cannot be one-sided.'

Mr Rabin secured a public commitment from Mr Clinton that the US would not reduce the level of its military and economic assistance to Israel in spite of budgetary pressures. The two sides also committed themselves to an even more intense degree of strategic co-operation, including the creation of a joint science and technology commission.

US United States of America XN Middle East P9721 International Affairs GOVT Government News P9721 The Financial Times London Page 9 328
Campbell's path eased in Canada Publication 930316FT Processed by FT 930316 By BERNARD SIMON TORONTO

CANADA'S ruling Progressive Conservative Party, seeking to reinvigorate itself before the general election later this year, is shedding almost an entire generation of political veterans.

Since Mr Brian Mulroney announced his intention on February 24 to step down as party leader a string of senior cabinet ministers have declined to enter the race to succeed him. Ms Kim Campbell, the 46-year old defence minister, now faces virtually no serious challengers. Ms Campbell would be Canada's first female prime minister.

A successor will be elected at a party convention on June 13, and is expected to call an election in either September of October.

The rash of departures is partly a recognition by the old guard that the party needs a fresh set of faces at the top if it is to overcome voters' deep hostility in the latter part of Mr Mulroney's eight years in office. It also reflects the commanding lead built up in the early stages of the succession race by Ms Campbell.

The latest Mulroney veterans to pull out of contention for the leadership are Mr Perrin Beatty, the communications minister; Mrs Barbara McDougall, the external affairs minister; and Mr Bernard Valcourt, the employment and immigration minister.

CA Canada P8651 Political Organizations PEOP Personnel News P8651 The Financial Times London Page 6 229
Jury selection in BCCI trial starts Publication 930316FT Processed by FT 930316 By ALAN FRIEDMAN NEW YORK

JURY selection began yesterday for the first US court trial in relation to the Bank of Commerce and Credit International affair since the bank was shut by international regulators on July 5 1991. Opening arguments at the New York trial - which involves criminal bribery, fraud and other charges against Mr Robert Altman, the protege and law partner of former US defence secretary Clark Clifford - are not expected until next week.

Mr Altman, who was indicted last year along with the 86-year-old Mr Clifford, will stand trial alone since Mr Clifford's lawyers have asked that his case be delayed because of his poor health.

The trial stems from BCCI-related charges announced last summer by Mr Robert Morgenthau, the New York district attorney.

Both Mr Clifford and Mr Altman have denied any wrongdoing in the BCCI affair.

Bank of Credit and Commerce International US United States of America P602 Commercial Banks GOVT Legal issues P602 The Financial Times London Page 6 178
World News in Brief: Prince to visit troops Publication 930316FT Processed by FT 930316

Prince Charles was due to visit British peacekeeping troops in Croatia and Bosnia today. General hopeful, Page 2

HR Croatia, East Europe BA Bosnia-Hercegovina, East Europe P9721 International Affairs PEOP Personnel News P9721 The Financial Times London Page 1 52
The FT Review of Business Books (30): Understanding Hypermedia Publication 930316FT Processed by FT 930316 By ALAN CANE

HYPERMEDIA IS the product of the collision of electronic cultures; radio, television, voice telephony and computing. It includes futuristic concepts like hypertext, a variety of automated, electronic encyclopaedia, and virtual reality, where the subject is transported into an electronic dream world via a video visor and sensory gloves. A more mundane example is the interactive video programmes extensively used in education and training.

Understanding Hypermedia: From Multimedia to Virtual Reality by Bob Cotton and Richard Oliver (Phaidon Pounds 19.95, 160 pages) sets out to explain, through a kaleidoscope of text and images, how individual electronic media can be combined to yield a new and revolutionary technology which can be controlled through language and physical gestures.

The authors believe it will dominate mass culture in the next century. Pioneers like Ted Nelson and Vannevar Bush have argued that the hypermedia approach to a topic is closer to the way humans think than the sequence of information presented in books or films. Aldous Huxley would have felt vindicated.

GB United Kingdom, EC P2731 Book Publishing TECH Products P2731 The Financial Times London Page XV 199
The FT Review of Business Books (25): Showing a darker side to Victorian values Publication 930316FT Processed by FT 930316 By GARY MEAD

WHITE-COLLAR CRIME IN MODERN ENGLAND, 1845-1929 by George Robb Cambridge Pounds 29.95, 250 pages

HANDBOOK OF CORPORATE FRAUD by Jack Bologna Butterworth-Heinemann Pounds 55, 308 pages

IF THERE were any lingering doubts about the amorality of business life in Victorian Britain, George Robb's deft history should put paid to them. Victorian commercial enterprise, with figures such as George Hudson - the 'Railway King' who 'misappropriated securities worth thousands of pounds from the railways he managed during the 1840s but was never prosecuted' - was not just shabby in itself. It has also coloured the business ethics of contemporary society.

The best historiography raises contemporary questions. Robb revisits familiar territory but he also inserts doubts concerning today's business practices. For once, the past really does serve as a guide to future performance.

Robb unearths the close links between government and business in a previous age. Given that Britain has been ruled by effectively the same administration for 14 years, his book inevitably suggests comparisons with today. The temptation for those with political power to abuse it is no less present in Britain today than it was in 1912, when the Marconi Affair was neatly swept under the carpet by a parliamentary select committee.

In that incident, 'the Attorney General, Rufus Isaacs, the Chancellor of the Exchequer, David Lloyd George, and the Postmaster General, Herbert Samuel, all purchased shares in the American Marconi Company at the time in which Asquith's Liberal government was negotiating a lucrative contract with the subsidiary British Marconi Company' whose chairman, Godfrey Isaacs, was the attorney general's brother. Never mind; no abuse happened, according to other politicians waiting in the wings for their own rewards.

What guarantees have we that ethical standards of government are any better today? It strongly emerges from Robb's account of previous malpractices that we cannot be entirely certain, so long as no regulatory divisions exist between politics and commerce. One constitutional reform to the benefit of all - except politicians - would be to prohibit all former and serving politicians from ever holding any company directorships.

Robb argues that little has altered since Victorian times: 'Bankers, brokers, solicitors, accountants and company directors continued to operate in a world that was alien and inscrutable to the general public. It was still difficult (and remains so to this day) to distinguish between fraud, incompetence, carelessness and misfortune. The rules of the game can be narrowed, but cheating does not disappear.'

He digs out some surprising support. Charles Dickens, Thomas Carlyle and Samuel Johnson loathed the parvenus who used paper-proliferation to rob fools. Johnson defined a stock jobber as 'a low wretch who makes money by buying and selling shares in the funds' in his dictionary.

At the start of this century, says Robb, 'the obscurity of most published company accounts ensured that shareholders would remain in the dark regarding a company's poor financial performance or a director's financial indiscretions. Even many honest directors believed that shareholders, like children, should know no more than is good for them, and, like children, should be deceived for their own good.' What has changed?

The Handbook on Corporate Fraud is aimed more at a US audience, with long sections on relevant US law and a useful - if depressing - chunk on big fraud cases, mostly in the US, between 1985-90. It is estimated that economic crime cost US consumers and businesses Dollars 114bn in 1990, or 2 per cent of GDP. A further Dollars 52bn is annually spent in combating crime and business frauds.

In spite of its US-inclined content, the book has some universally useful passages; a checklist of characteristics of fraud-prone organisations, profiles of embezzlers, tips on fraud auditing and so forth.

Bologna - involved in fraud auditing techniques for many years - says that 'you can prevent white-collar crime by becoming more informed about it and by applying rules of self-protection . . . be wary of employees who never take vacations, live beyond their means, or suffer from mood swings.' Not every chief executive officer can be on the take, surely?

GB United Kingdom, EC P2371 Fur Goods TECH Products CMMT Comment & Analysis P2371 The Financial Times London Page XIII 719
The FT Review of Business Books (26): The good, the bad and the crooked Publication 930316FT Processed by FT 930316 By TIM DICKSON

CORPORATE RESPONSIBILITY by Tom Cannon Financial Times/Pitman Publishing, 277 pages, Pounds 30

A MORE promising book title might be 'Corporate Irresponsibility' given the potential cast of high-class villains from recent years: Maxwell, De Lorean and Peter Clowes to name but three. It would be wrong, however, to under-estimate the interest in Tom Cannon's more worthy subject.

Business ethics, respect for the environment, even affirmative action to help the disadvantaged are important boardroom issues; they ought to feature prominently on any MBA course. It must be significant, moreover, that of the various sub-committees set up by a handful of the great and the good recently to map out the company of the future, virtually everyone wanted to be on the one concerned with corporate responsibility.

Guilt perhaps? An eye for the publicity that often accompanies social and charitable projects sponsored by big companies? Not if you agree with Professor Cannon that corporate responsibility is much more fundamental, that it is an integral part of what he calls industry's 'economic contract with society'.

The form of this contract, he argues, has varied over time and has been substantially redefined in the 1980s and early 1990s as the frontiers of the state have been rolled back. For lying behind trends such as privatisation and contracting-out is a developing consensus that private enterprise is relatively better able than the public sector to provide most economic and social needs.

Cannon's proposition that management can deliver its side of the bargain - that the skills, knowledge and competence exist - is perhaps a touch generous. Certainly it is in companies' self interest successfully to do so - otherwise their contract will presumably be renegotiated to their detriment by a future generation. But while the book is full of examples of outstanding companies it is also liberally sprinkled with examples of boardroom greed, corporate disregard for human health and safety, and abuse of the environment.

Nor is the link between corporate responsibility and business performance - an underlying Cannon theme and an article of faith for many practitioners - altogether satisfactorily established. In view of their recent difficulties it is perhaps unfortunate that IBM - and even Mercedes Benz - are cited as business success stories with a good corporate responsibility record.

The value of this well-documented book lies in its historical perspective: conflicts between industry and society go back centuries, for example, while the philosophical roots of today's good corporate citizens can be traced to the Victorian philanthropists and North American progressives (though generally there is not enough on the US); in its identification and coherent treatment of the relevant issues (from minority employment and boardroom pay to the moral dilemma of whether companies should support birth control programmes in the Third World); and in its enthusiastic advocacy of best practice.

Professor Cannon may be shooting at a moving target but few can deny his conclusion that 'part of the contract between the manager, the corporation, and the community is an acceptance that neither office nor position give immunity from responsibility. Increasing numbers of corporate leaders recognise that a secure moral position, respect for the needs of others, business performance and enterprise quality go together.'

GB United Kingdom, EC P2731 Book Publishing TECH Products CMMT Comment & Analysis P2731 The Financial Times London Page XIII 571
The FT Review of Business Books (25): Charm offensive, part 2 Publication 930316FT Processed by FT 930316 By WILF ALTMAN

TROUBLESHOOTER 2 by John Harvey-Jones BBC Books, Pounds 14.99, 216 pages

IN HIS latest book, to mark the recent Troubleshooter 2 television series, Sir John Harvey-Jones looks back at the fortunes of the businesses he visited in the first series and offers his own brand of consultancy to a further six organisations - smaller public companies and public sector businesses.

His impressions of these visits, the background, the experienced, sympathetic probing and analyses make fascinating reading. The man's natural curiosity, enthusiasm and charisma are matched by the sort of detailed grasp one would not associate with the former head of any large organisation, let alone Britain's largest company, ICI.

The book, even more than the TV series, demonstrates the man's determination to see a problem from every conceivable angle. Whether he is visiting Tolly Cobbold, a small East Anglian brewery, Norton Motors or Charles Letts, the diary manufacturers, he talks to finance directors, production directors, marketing and sales heads, and to all levels in the factory or workshop, calls on retail stockists, even meets trade press editors.

In the case of the South Yorkshire Police Force and Bradford Hospital Trust, he seems even more resolute to get to the root of rather different but still essentially management problems, but always with courtesy and understanding.

The man is living proof that there is more to life after conventional retirement age than collecting the odd non-exec directorship, playing golf and growing better roses. Perhaps he should be pressed into government to restore our manufacturing strengths.

GB United Kingdom, EC P2731 Book Publishing TECH Products P2731 The Financial Times London Page XII 288
The FT Review of Business Books (24): A new strategy for small businesses Publication 930316FT Processed by FT 930316 By CHARLES BATCHELOR

ENTERPRISE AND HUMAN RESOURCE DEVELOPMENT: LOCAL CAPACITY BUILDING by R J Bennett and A McCoshan Paul Chapman Publishing Pounds 39.95, 352 pages

THE CONTRIBUTION of small businesses to the UK economy has been given increasing recognition over the past two decades. What has been only belatedly appreciated is the need for professional support for these businesses at the local level.

Meeting the needs of the small firms which make up the bulk of the business population has important implications for policies towards enterprise, education and training, the authors of this ambitious study argue. Strong, locally-based networks of support will have a significant impact on the country's ability to generate wealth, they suggest. Yet local initiatives must form part of a common strategy.

The reasons for Britain's relative economic failure have been exhaustively catalogued by previous commentators. So Bennett, professor of geography at the London School of Economics, and McCoshan, who works in local government, merely sketch in the economic background before moving on to a study of the agencies and programmes which exist.

If Britain is to maintain and improve its standard of living it must not only do better than it has done in the past, they warn - it must do as well as or better than the best. In terms of business support this means creating a network at least as efficient as the best of the continental European chambers of commerce.

The authors acknowledge that the business community will benefit from progress which has been made in the areas of both education and training but point to further improvements which are needed. In education, a better balance must still be found between vocational and academic needs.

Improvements in the training system, meanwhile, will have to be maintained for a decade or more if there is to be a fundamental change in the attitudes of employers, employees, parents and trainers. But it is in the field of enterprise that most still needs to be done, the authors argue.

At present business is served by a confusing welter of support organisations, including chambers of commerce, enterprise agencies and Training and Enterprise Councils (in Scotland, Local Enterprise Companies).

The chambers' strength lies in the fact that they are membership organisations, but they lack resources. The enterprise agencies have done a good job helping start-ups but are for the most part narrowly specialised and also short of funds. The TECs have more money but frequently lack credibility because they were a government invention.

The organisations which currently exist to back business locally are fragmented and lacking in resources. There are frequent overlaps, both geographical and in the programmes they run.

In other respects, though, there are gaps in the provision of services. Rural areas are poorly provided for and while the very small business is well served the larger small company - employing between five and 100 people - does not get as much help as it requires.

Bennett and McCoshan believe there is a greater role for government as champion. Self-help alone is unlikely to fill the gaps in the support framework and there are signs that the limits of voluntary networks have been reached. Government should provide the core funding to the agencies which help small business and should help to simplify the present complexity.

As it happens, the government is already taking action. It announced last autumn the launch of a network of business advice centres or 'one-stop shops,' intended to bring together existing support agencies. The first 15 or so are due to start operating next month

The authors welcome this initiative but point to several weaknesses. The one-stop shops have been provided with just short-term government funding and since they are not membership organisations, face the same problem of legitimacy as the TECs. The TECs, which are leading the one-stop shop initiative, are subject to excessive official scrutiny of their spending programmes and are still top-heavy with civil servants.

To become truly effective, the TECs/one-stop shops need to be given further powers and independence, Bennett and McCoshan say. They suggest that this could be achieved by the introduction of a compulsory registration system for businesses with a fee charged to all but the smallest firms. This would provide the one-stop shops with an income and also generate a wealth of information about business which has been lacking.

The TECs/one-stop shops might even be given a stake in the proceeds of the uniform business rate. This would re-enfranchise business rate payers as well as providing an income. These steps would be radical but a stronger local partnership organisation is the only way of meeting the challenges of the next century, the authors argue.

This is a well-informed and timely book which deserves a wide readership. At two-thirds the length and with a lighter, less academic style it might have reached out to more of the participants in the process of change its authors advocate.

GB United Kingdom, EC P2731 Book Publishing TECH Products P2731 The Financial Times London Page XII 855
The FT Review of Business Books (21): Not just jumbos are larger than life Publication 930316FT Processed by FT 930316 By PAUL BETTS

WIDE-BODY: THE MAKING OF THE 747 by Clive Irving Hodder & Stoughton Pounds 18.99, 384 pages

DOGFIGHT: THE TRANSATLANTIC BATTLE OVER AIRBUS by Ian McIntyre Praeger Publishers (dist. by The Eurospan Group) Pounds 34.50, 312 pages

JUST LIKE the new 600 to 800 seat extra-large airliner now being studied by the world's leading manufacturers, the commercial aircraft industry has always had a larger than life quality. Every aspect of the business seems to take on a jumbo dimension: not just the conception and construction of ever bigger jets with ever bigger engines, but the money, the politics, the internal infighting and the international repercussions are all of gargantuan proportions.

Two new books sustain the image. Wide-Body by Clive Irving is a detailed account of how Boeing risked the entire company to develop and build the 747 jumbo, an aircraft that revolutionised air travel by bringing the world into everybody's reach and pocket. Dogfight by Ian McIntyre is the byzantine story of the transatlantic battle over government subsidies for the European Airbus consortium and trade in aircraft.

Very different in content and approach, the two books are complementary. Wide-Body tells the early story of the jumbo jet and how it enabled Boeing to dominate the world commercial airliner market. Considerable research has gone into this book which dwells at length on the technological challenges undertaken by Boeing to build the 747.

Dogfight takes the story on with the emergence of the Airbus consortium providing a concerted European challenge to the American manufacturers and to Boeing's particular hold on the market for very large aircraft.

This book concentrates less on technology and much more on the international politics of commercial aviation, with a lively account of the propaganda war between the US and Europe, of the Airbus animal and the less than orthodox way of selling aircraft to airline customers around the world. Selling an Airbus or a jumbo is a bit more complicated than persuading someone to buy a Mercedes or a Pontiac motor car, Mr McIntyre explains and then goes into some of the ferocious campaigns fought between the rival manufacturers to secure a big order from an airline.

The book is more directed to students of the GATT, of international trade and of opaque accounting and business practices rather than to the aircraft enthusiast, who will probably find more absorbing the aerodynamic wranglings of Boeing engineers in Mr Irving's book.

The trouble with writing about the commercial aircraft industry is that you need to update constantly your material to keep pace with developments. The 747 will soon be superseded by an even bigger jumbo which Boeing has now agreed to study jointly with the four European partners in the Airbus consortium, its deadly rival. If the project goes ahead, it will lead to an entirely new realignment in the aircraft manufacturing industry - which will tax not so much the fair trade negotiators as the anti-trust experts.

GB United Kingdom, EC P2731 Book Publishing TECH Products CMMT Comment & Analysis P2731 The Financial Times London Page XI 530
The FT Review of Business Books (23): Them and us together Publication 930316FT Processed by FT 930316 By ROBERT TAYLOR

UNION BUSINESS: TRADE UNION ORGANISATION AND FINANCIAL REFORM IN THE THATCHER YEARS by Paul Willman, Tim Morris and Beverly Aston Cambridge University Press Pounds 35, 254 pages

MOST OF Britain's unions have normally run on a shoe-string, with low subscriptions and limited services for the members. Their past strength derived not from bulging assets but industrial muscle and a constant drive for new members. Many union officials regarded finance as a sordid affair and business unionism as a term of abuse.

But as Paul Willman and his colleagues at the London Business School indicate in their fascinating analysis of trade union finances during the Thatcher years, the familiar picture of thread-bare unions has changed. While their membership declined during the 1980s, trade unions saw an improvement in their financial performance with a growth in their asset income and fall in 'friendly society' benefits.

The book provides a wealth of topical data on union finances with chapters on more interesting cases such as the Mineworkers, the Engineers and the Electricians. But its more general interest lies in its focus on an important and neglected issue: the reliance of trade unions for their very survival on the goodwill of employers.

As the authors explain: 'No union we encountered could, in our judgment, fund day-to-day operations indefinitely from its own resources without massive subscription increases or exhaustion of assets. All are employer-dependent'.

Nearly 80 per cent of workers in unions have their dues paid out of their gross pay packets by their employers in agreement with the unions. This check-off ensures administrative efficiency and keeps union current accounts liquid. However, it could decline during the 1990s, as the government's trade union legislation will make it more costly for employers to administer.

But what if employers decide they no longer need trade unions? The authors point out that many unions are no longer 'activist-based voluntary organisations' and rely on 'inertia-selling'. Breaking free of a reliance on employers might actually reinvigorate unions in a time of decline.

GB United Kingdom, EC P2731 Book Publishing TECH Products CMMT Comment & Analysis P2731 The Financial Times London Page XI 371
The FT Review of Business Books (22): The electronic contract Publication 930316FT Processed by FT 930316 By PAUL TAYLOR

SUBCONTRACTING ELECTRONICS by David Boswell McGraw-Hill Pounds 27.95, 264 pages

A GROWING number of domestic and multinational companies are sub-contracting or 'out-sourcing' their electronic manufacturing activities as an integral part of their corporate strategies.

Based on conservative estimates, contract electronics is already a Pounds 550m-a-year business in the UK and is growing by about 15 per cent a year. In Europe as a whole it represents the fastest growing sector of the electronics industry. Customers range from blue-chip multinationals from both sides of the Atlantic and the Far East, to smaller companies with perhaps little experience of electronics design and assembly.

However, businessmen without any direct experience of contract electronics manufacturing face a formidable challenge in deciding whether to 'make or buy', especially if the jargon of the electronics sector and its technology is unfamiliar.

Subcontracting Electronics, by David Boswell, a consultant and specialist in surface mount technology, is a practical guide and manual for executives, managers and contract negotiators involved in electronic purchase and supply decisions.

His starting point is the belief that the increasing complexity of system design and assembly requires a more professional approach from both customer and supplier. Accordingly, the reader is taken step-by-step through each stage of the contracting process.

The first two chapters deal with the structure of electronics industry and the most important factors to be considered in deciding whether to manufacture an electronic product or sub-assembly 'in-house' or to contract out the work.

Chapter two identifies the main technological and management theory driving forces behind the trend towards contract electronics manufacturing, including the continuing shift towards shorter product cycles, ever-increasing complexity and the need for greater production flexibility.

Arguably this is one of the most important sections of the book and could have been longer and more detailed. But although the author, who is also chairman of the UK-based Surface Mount Club, is clearly an advocate of contract manufacturing, he presents the arguments concisely. Refreshingly, he lists the pitfalls and disadvantages as well as the advantages.

Other chapters deal with technologies, contract terms and conditions, how to choose a contractor and costings. Finally there are three fictitious but enlightening 'case studies,' and some helpful definitions and abbreviations for the uninitiated.

GB United Kingdom, EC P2731 Book Publishing TECH Products CMMT Comment & Analysis P2731 The Financial Times London Page XI 406
The FT Review of Business Books (19): The customer always did know best Publication 930316FT Processed by FT 930316 By GUY DE JONQUIERES

MASS CUSTOMIZATION: THE NEW FRONTIER IN BUSINESS COMPETITION by B. Joseph Pine II Harvard Business School Press, Dollars 29.95, 333 pages

FROM TIN SOLDIERS TO RUSSIAN DOLLS: CREATING ADDED VALUE THROUGH SERVICES by Sandra Vandermerwe Butterworth Heinemann, Pounds 25, 304 pages

FOR GENERATIONS, Henry Ford's dictum about selling cars 'in any colour as long as it's black' has been a metaphor for a bygone business era. Yet until about a decade ago the essential precepts of Fordism, with its single-minded focus on making large volumes of standardised products as cheaply as possible for a homogeneous market, remained embedded in much of western industry.

The Fordist model finally collapsed under external pressures with which it was ill-equipped to cope: the need to differentiate products in the face of saturated demand; accelerating technological change and discontinuity; the advent of new, more agile forms of competition, particularly from Japan; and above all, the emergence of more sophisticated and discriminating consumers.

The system was further weakened by internal sclerosis. Its preoccupation with continuous production flows and operational efficiency bred a lop-sided, introverted management culture. Research and development became more remote from manufacturing, while the main role of the sales function was to dispose of whatever the factories chose to produce.

Both books offer a broadly similar analysis of the failings of the old model. They also agree on the nature of the new challenge confronting business: to find ways of adding value by meeting the specific needs of individual customers, rather than merely through the relentless pursuit of lower production costs. The question is how to meet that challenge.

Joseph Pine, a manager with IBM's executive education centre, argues that the answer - in both manufacturing and services - lies in combining the cost efficiencies of mass-production with the variety of tailor-made solutions which characterised craft production.

His vision may sound fanciful. The strength of his book lies in its deft amalgamation of rigorous analysis with a wealth of plausible case studies of companies which have embarked on what most have discovered to be a never-ending quest for the holy grail of 'mass customisation'.

Some examples, such as Toyota's ground-breaking work in cutting production cycles and accelerating model development and the story of the Swatch, are well-known. Others, such as the flexible production system developed by Bally Engineering Structures, a US building industry supplier, are fresh to the UK.

Though Pine writes with proselytising zeal, he is realistic about the pitfalls which mass customisation can face. One is the pursuit of diversity for its own sake, which either fails to create additional demand or alienates customers by rendering existing products obsolete too rapidly - a trap into which some Japanese electronics and car manufacturers have fallen.

Another danger is that too many different product offerings can create pressures for standardisation, as has happened in computer operating systems. But then, as Pine points out, such sudden changes of direction are part of the market turbulence to which 'mass customisation' is supposed to respond.

The central thesis propounded by Vandermerwe, professor of international marketing at IMD, a Swiss business school, is that industries must increasingly think of themselves as providers of services, rather than producers of things. 'The inroads made by services will continue into the next millenium. In fact, they are likely to be even more predominant,' she writes. 'Whereas the service ethos is now the competitive differentiator, it will become a condition for corporate survival in the future.'

But what does that really mean? The basic message seems to be that producers prosper by doing what customers want, rather than what suits themselves. However, Vandermerwe does not advance the debate on the concrete implications for management much beyond the existing literature on fashionable topics such as empowerment and teamwork.

Nor is great enlightenment to be found in the book's choice of bite-sized case studies. Few observers would disagree that Federal Express and SAS are models of how to create value from customer service. But to commend in the same breath practices at American Express cards, IBM and Matsushita - all of which have recently seen their traditional market franchises eroded - is, to say the least, confusing.

GB United Kingdom, EC P2731 Book Publishing TECH Products P2731 The Financial Times London Page X 731
The FT Review of Business Books (20): On different tracks Publication 930316FT Processed by FT 930316 By RICHARD TOMKINS

JANE'S WORLD RAILWAYS 1992-93 edited by Geoffrey Freeman Allen Jane's Data Division, Pounds 135/Dollars 225,826 pages

SHIPPING LINES do not own ports, nor do they control the sea lanes; airlines do not own airports, nor do they control the air corridors; bus companies do not own the roads, nor do they control the traffic lights; so why should train operators need to own the railway tracks and control the signals?

The answer, of course, is that they needn't. But do not try telling that to a railwayman or his friends. For as long as anyone can remember, railways have been run as vertically integrated operations; and that, as far as the railwayman is concerned, is the way they should stay.

Thus Geoffrey Freeman Allen, as good a friend as the railways ever had, gets fired up to boiling point over Britain's plan to separate track from trains as part of the privatisation of British Rail. 'It will be astonishing . . . if any Continental European government, let alone its railway, views this as better than a dogma-driven exercise, utterly irrelevant to national need of a well-balanced multi-modal transport system, and a damper of any further technological exploration of rail transport's potential,' he says in his foreword to Jane's World Railways.

It is a forlorn cry, and one that scarcely rings true: for as Mr Freeman Allen is obliged to acknowledge, the reality is that separating tracks from trains is catching on all over Europe. The Swedes, the Swiss and the Austrians have already done it, and the Germans, the Dutch and the Italians are planning it. For many (as for Britain), the long-term intention is to open up the tracks to private sector train operators in an attempt to inject competition, enterprise, innovation and investment into the industry.

Huffing and puffing apart, however, this volume remains an indispensably handy guide to the world's railway industry. Perhaps what is really worrying Mr Freeman Allen is how long it will remain so; for if European governments' plans really do succeed in creating a golden age for the railways, the proliferation of entries for new track and train operators may lead to the need for a wheelbarrow to carry it around.

GB United Kingdom, EC US United States of America P2731 Book Publishing TECH Products P2731 The Financial Times London Page X 408
The FT Review of Business Books (18): Old new technology Publication 930316FT Processed by FT 930316 By ALAN CANE

BEFORE THE COMPUTER by James W Cortada Princeton Dollars 55, 392 pages

IT CAN sometimes be hard to convince today's young executives, brought up on a ever richer diet of personal computing power, that a mature computer industry with its own rules and disciplines existed before the advent of the Apple II.

James Cortada's book steps back in time to examine a similar phenomenon: the belief that the modern computer industry grew out of scientific research during and after the second world war rather than as a logical development of the office equipment industry.

Cortada's thesis is that the origins of the computer business stretch back a very long way, encompassing the companies and individuals responsible for bringing to market typewriters, calculators, tabulators, cash registers and accounting machines.

'Somewhere today,' he concludes, 'a broken computer is being repaired by a service representative, just as a broken tabulating machine in the 1920s was repaired by a customer engineer from IBM or Powers out on a service call. This is an industry with patterns of behaviour that stretch back a very long time.'

The author is neither professional historian nor academic but a long-service International Business Machines executive who now works as an executive quality consultant for the company. While this gives him a unique insight into the working of the data processing industry, it may also have inhibited his style somewhat, especially where Thomas Watson Snr, the maker of the modern IBM, is concerned.

His account, for example, of the US government's anti-trust action against NCR, for whom Watson then worked, and which might have resulted in some 22 NCR executives going to jail, is notably even handed compared with other accounts. (Watson and the others were saved by a flood which devastated Dayton, NCR's home town. 'The Cash' poured in finance for relief work, popular support swung behind the company and the government backed off.)

Cortada's main argument is an interesting proposition, however. The transistor and the personal computer, two of the most important industrial developments of the 21st century, were not nurtured, in the US at any rate, by their traditional industries - the thermionic valve manufacturers and the mainframe computer companies - but by start-ups.

America's first mainframe, the Univac, was marketed by a broadly diversified office equipment manufacturer, Remington-Rand, after IBM, NCR and others had failed to show much interest. It took the company from 1950 until 1966 to turn a profit on its investment.

Inside Cortada's thick, tortuously written book is a thin, lively hypothesis struggling to be heard. A pity; historians will appreciate the detail. Other readers may not stay the course.

GB United Kingdom, EC P2731 Book Publishing TECH Products CMMT Comment & Analysis P2731 The Financial Times London Page IX 475
The FT Review of Business Books (17): Why glorious Glaxo fails to interest Publication 930316FT Processed by FT 930316 By PAUL ABRAHAMS

GLAXO: A HISTORY TO 1962 by R P T Davenport-Hines and Judy Slinn Cambridge Pounds 55, 406 pages

WHAT PURPOSE do corporate histories serve? Should they be used to create a tradition, offering a heritage that can provide an inspiration for employees and managers alike? Should they be used to lift the company's confidence by underlining the importance of the corporation in society? Should they offer historians a means of examining larger themes within society - say, economic imperialism, or the industrial decline of the UK?

Or is their role merely to serve as presents for company guests, and employment for historians unable to find positions in the UK's shrinking university system?

Certainly, corporate histories should entertain and inform. Unfortunately, this volume - a history of Glaxo until 1962 - fails on the whole to entertain, and provides little information of interest to either the historian or the general reader.

Yet a history of Glaxo should be riveting. Its origins were humble. A small family firm, founded by Joseph Nathan, the sixth son of an East End wholesale tailor with considerable charm and very little brain, eventually became Europe's biggest drugs group and is now vying for the world's number one position.

The early days of the company are effectively chronicled. Joseph Nathan was forced to leave London because of asthma and travelled to Australia and eventually New Zealand to make his fortune. While in Wellington he became involved in the butter trade.

A chance encounter in 1903 at Debenham's department store by one of Joseph Nathan's sons led the family firm into the dried milk industry. The Nathans spotted an opportunity for drying surplus skimmed milk in New Zealand and then exporting it to the UK.

The potential market for dried milk was enormous - a decline in breast-feeding during the late 19th century and the poor nutritional value of condensed milk had led to an increase in infant mortality - if the Nathans could solve the technical problems in drying the milk.

They bought a patented drying process for Pounds 10,000 which at first proved troublesome. Initial sales were high, so they geared up production. But the repeat business was limited and they ended up with a stock of unsaleable product. The family wanted to register their new product's name as 'Lacto', but this was refused by the Trade Marks office; they played with the name until they came up with 'Glaxo'. But the technical problems nearly led the family to abandon a product which eventually overwhelmed the company.

Alec Nathan, Joseph's sixth son, had completed a correspondence course in advertising and marketing and wrote much of the first promotional material himself. His innovative ideas included sending circulars to parents of babies whose births were announced in newspapers. During the first three months of 1909, the company achieved a 19.6 per cent reply rate.

Those looking for indications of the importance of clinical trials should look at the impact of the Glaxo milk in Sheffield. In 1907, 445 babies were given dried milk. Of these 35 died - an infant mortality rate of 7.9 per cent, compared with the city's normal 14.5 per cent.

Glaxo milk's losses of Pounds 2,191 in 1910 were turned around by 1912 into a profit of Pounds 2,028. Turnover increased from Pounds 50,000 in 1913 to Pounds 550,000 by 1918.

However, on events after the first world war the authors appear merely to be going through the motions and the book loses its way. There is little drive in the narrative and the analysis of the group's transformation from a family trading company into a pharmaceuticals concern is poor. Problems such as the collapse of the dried milk market after the war are mentioned, but how the company reacted is not explained. The impact of the collapse of penicillin prices after the second world war is not examined. No full explanation is given for the fall in profits during the early 1950s, nor the static results during the rest of the decade.

During the later period, some figures stand out. Alfred Bacharach, a former Cambridge Fabian, Independent Labour Party activist, rock-climber and expert in French gastronomy, eventually became Glaxo's chief scientific officer. He was passionate about syntax and listed 'punctuation' as a recreation in Who's Who.

But the book finishes before the most interesting part of the story has begun. No explanation is given of why the volume ends in 1962, before the Beecham bid in the 1970s and the extraordinary expansion during the 1980s. The authors may be partly excused by the destruction of some archives during the last war. But they appear to have made no use of oral testimony. A poor index, mostly of names, products and countries, rounds off a poor volume.

GB United Kingdom, EC P2731 Book Publishing TECH Products CMMT Comment & Analysis P2731 The Financial Times London Page IX 834
The FT Review of Business Books (15): How the Japanese exported a dream Publication 930316FT Processed by FT 930316 By MARTIN DICKSON

BEYOND MASS PRODUCTION: THE JAPANESE SYSTEM AND ITS TRANSFER TO THE US by Martin Kenney and Richard Florida Oxford Dollars 29.95, 410 pages

ARGUABLY THE single most important industrial phenomenon of the past 20 years has been the rise of Japan to dominate many sectors of global manufacturing, initially by exporting but increasingly through the establishment of factories in foreign countries. Much has been written about this achievement, but largely by examining manufacturing processes in Japan itself, rather than looking at the nation's success in diffusing these techniques abroad.

Now comes Beyond Mass Production, a study by two US academics, Martin Kenney, of the University of California, and Richard Florida, of Carnegie Mellon University, which describes how Japanese companies have established hundreds of so-called 'transplant' factories in the US and adapted American workers to their ways. It is a curiously uneven book, blending some useful description of transplant operations with flights of impenetrable and pretentious academic prose.

The authors argue that Japanese companies have pioneered a new manufacturing method (which they call 'innovation mediated production') involving close teamwork, the breakdown of white and blue collar distinctions, and the harnessing of workers' intelligence to create constant innovation. This, they say, marks a distinct and crucial break with traditional US manufacturing techniques (labelled 'Fordism') where workers are unthinking cogs in a machine.

All this represents fancy new packaging for some fairly familiar ideas. For example, the Total Quality Management movement, which is becoming increasingly popular across US industry, has similar values to 'innovation mediated production' at its core, learnt from Japan.

Nor do the authors serve their cause well by the quality of their forecasting. They suggest, for example, that the Japanese economy is set to enjoy a prolonged boom (whereas the country is now in its worst recession for 20 years), predict that US car company Chrysler is destined to lose its independence (when it is in fact staging a dramatic recovery), and make some highly questionable predictions about Japan's strength in high technology.

Yet amid the irritating, jargon-ridden wrapping there is a useful compendium trying to get out. The core chapters describe in straightforward prose how the Japanese have fared in setting up transplant operations in the fields of automobile assembly and parts, as well as electronics, and invested heavy in the US steel and tyre industries.

The experiences have been very different in each sector. There is, for example, a much greater gulf between blue and white collar workers in Japanese electronics transplants than in Japanese electronics firms in Japan or in the automotive industry transplants in the US. Even among the car transplants, there is a big divide between Toyota's smooth-running Kentucky plant and Mazda's plant outside Detroit, which has a history of poor labour relations.

Nor, as the authors point out, are the Japanese factories paradise: 'Transplants in various industries impose strict rules on their workers; some even use methods of intimidation and surveillance to enforce company loyalty. A few transplants that have tried to get to fill production very quickly have experienced high rates of injury among their workers.'

The authors note that in nearly every plant they visited Japanese executives said that one of their greatest problems was teaching American managers to adapt to their ways, both in terms of commitment to the company and the new, collegiate style of management. 'The strength of the Japanese system,' they add, 'is the organic link between managers and workers; this is very difficult to reproduce in the US with traditional American managers.'

Yet this problem is not confined to the transplants. Several leading American companies, at the forefront of the quality movement, are also struggling to find the best way to train a new type of flexible, non-autocratic middle manager. Getting the right answer may prove one of the most important factors for success in the new industrial era.

US United States of America P2731 Book Publishing TECH Products P2731 The Financial Times London Page VIII 680
The FT Review of Business Books (16): Selling soft soap to the Soviets Publication 930316FT Processed by FT 930316 By GARY MEAD

MOSCOW MEETS MADISON AVENUE by Gary Burandt Harper Business Dollars 22.50, 222 pages

IN THE pre-Yeltsin days, before uncertain freedoms replaced unpleasant certainties, political jokes in the former Soviet Union had an edge. One told of an American and a Russian debating which was preferable, capitalism or communism. Uncle Sam says 'under capitalism, man exploits man.' Vladimir pooh-poohs such immorality: 'in Russia the situation is quite the reverse.'

Gary Burandt, 'with Nancy Giges', has (unintentionally, I suspect) written a peach of a book, a perfect illustration of some of the unpalatable truth lying beneath the old chestnut. Currently chief executive officer with the Dentsu wing of the US advertising agency Young and Rubicam, Burandt went to the Soviet Union in 1988 to open its first advertising agency.

Burandt's experiences are not particularly interesting in themselves, but they unwittingly testify to that warm bath of self-obsession without which many advertising people are miserable. Young and Rubicam must be proud; Burandt scarcely lifted his attention beyond a single horizon - the selling of clients' products.

Burandt and his colleagues are constantly infuriated with the inadequate resources, the petty corruption, the apparently endless hindrances which dogged their working days. But the inadvertent delight is the unconscious manner in which Burandt betrays the paucity of the devoted advertising person's life, fixated with preaching the virtues of hamburgers, toothpaste, soap powder and so on.

Thus, while all around him an empire and an ideology are on the verge of collapse, Burandt reveals a personal crowning achievement at a trade fair, where he manages to manipulate Mikhail Gorbachev into a commercially useful event: 'We had the Colgate representative also prepped (prepared) for a 'photo op' with a giant tube of Colgate 'Big Red' toothpaste, the biggest we had. It worked. He shook Gorbachev's hand and handed him the toothpaste. As the Big Red box changed hands, a hundred camera shutters clicked as one. One of the photos would be in the Colgate boardroom in just a few days.' Yahoo]

Young and Rubicam and all the other western advertising agencies which have since gone east were shoving hard at open doors. Starved of life's material comforts for so long, former Soviet citizens have always embraced with gusto anything which brightened up awful lives. Now, at least, they have the ads, if not the cash to buy those goods the ads promote.

US United States of America P2731 Book Publishing TECH Products P2731 The Financial Times London Page VIII 432
The FT Review of Business Books (14): Old fears, but a new enemy Publication 930316FT Processed by FT 930316 By TONY JACKSON

TURNING JAPANESE by Tim Jackson Harper Collins, Pounds 16.99, 254 pages

FOR A British government faced with the brutal combination of a yawning trade gap and the worst recession since the war, there is a ray of hope in the gloom. Up and down the UK, brand new Japanese factories are turning out Toyota cars and Sony televisions for the export drive. But what if this benevolence masks a fiendish plot? What if the new European single market is to be overrun by the enemy within?

As Tim Jackson's book points out, we have been here before. In 1968 Servan-Schreiber's Le defi americain raised the spectre of a Europe crushed by American industry. Then as now, the aggressor was supposed to have unfair advantages: cheap finance, better links with government and universities, and so forth. As Jackson also points out, this was not mere paranoia. The true pan-European car companies are now General Motors and Ford. The true pan-European computer company is IBM.

The new threat is posed by an extraordinary surge of Japanese investment in Europe in the past decade. In 1985 new plants totalled 25. In 1989 the figure was 118 - more than had been established between the end of the war and 1979.

'What made all this frightening was partly the suddenness of Japan's move across the globe. But it was also the fact that the sectors in which Japanese companies appeared to be investing most aggressively - the car industry, computers and electronics - were precisely the same as those in which Europe felt itself most acutely lagging behind.'

This is not all. 'It is chilling to note that many of the biggest Japanese companies have not merely built their transplants from scratch, but have also deliberately chosen sites far away from other companies in the same business. This suggests that they consider the problems of the existing industry so deeply ingrained that they outweigh all the advantages of joining it. There could be no more powerful reminder of how much European firms will have to unlearn when they try to reform themselves from within.'

The thesis is thought-provoking, but not wholly proven. As Jackson says, the Japanese banks made as bad a botch of their expansion in the late 1980s as did their European rivals. In computing, the Americans are holding a commanding and increasingly important lead in software. In consumer electronics, by Jackson's account, the much-battered Philips is fighting its corner better than its wretched financial record suggests.

And above all, the late 1980s were a very odd time for Japan and Japanese business. Jackson tackles the issue of the bursting of the financial bubble. But what he cannot yet say - nor, indeed, can anyone else - is whether the Japanese financial and industrial machine has suffered lasting damage; nor, indeed, how far the surge of European investment was merely a product of the bubble, rather than a long-term shift in strategy.

But it does not do to quibble. The author has worked as a journalist in both Tokyo and Brussels and has an impressive grasp of many of the big issues facing global industry. His treatment of them is always clear and often illuminating. The manufacturer planning an international trip could do a lot worse than take a copy along.

GB United Kingdom, EC P2731 Book Publishing TECH Products P2731 The Financial Times London Page VIII 586
The FT Review of Business Books (11): Blaming Japan for the West's failures Publication 930316FT Processed by FT 930316 By MARTIN WOLF

TRADE WARS: JAPAN vs. THE WEST by Phillip Oppenheim Weidenfeld & Nicolson Pounds 17.99, 241 pages

ASK WESTERNERS why the Japanese have succeeded so spectacularly since the Second World War and their answer would come back pat: they cheat. The West is the innocent victim of 'Japan Inc'.

The explanation may be balm to the West's injured pride, but this splendid book from Phillip Oppenheim, a Conservative member of the British parliament, demonstrates that the defendant is not guilty as charged. The Japanese have not succeeded because they cheat, but because they are exceptionally good at what they do. And what should westerners do in response? They should do what the Japanese have done: learn from those more successful than they are.

Mr Oppenheim's book relies heavily on the pioneering work of others, notably on James Bovard's The Fair Trade Fraud (St Martins Press, New York, 1991). This does not devalue the book, for it offers a powerful polemic both about western trade relationships with Japan and about the state of the trading system as a whole.

Not only is it true, as the author argues, that 'underlying the bleats about unfair trade is an unholy mixture of greed, hypocrisy and the need for good, old-fashioned scapegoats', but this particular mixture is explosive. 'The world trading system is in crisis,' argues Oppenheim, 'its plight caused by short-term responses to deep-seated economic and industrial problems, exacerbated by self-serving assertions by industrialists and politicians that the Japanese have succeeded by unfair means and must be responded to in kind.'

What then are the reasons for Japanese success? These people actually believe that 'the prime objective of education should be to equip its people with the ability to earn a living'; they save twice as much as do Americans; their taxation is low and their budget has normally been balanced; their firms compete fiercely; and 'each year Japanese industry spends nearly Pounds ,7000 in fixed capital investment per employee - twice as much as in France or Germany and nearly three times as much as in Britain.'

The prowess of Japanese industry reflects 'an open-minded willingness to adopt the best technology and practices for a given situation; an eagerness to enter new fields and markets as a means of surviving in the face of unrelenting competition; the high quality and educational attainment at all levels of Japanese industry; and a preparedness to take pains to make employees feel part of their organisation. Above all, there is the seemingly infinite capacity of Japanese managers to take trouble and to ensure that the customer is their chief priority.'

The more open-minded western critics of Japan will admit some of this. But they will also point to the role of government and of 'export targeting'. Mr Oppenheim notes, in response, that what is unique about Japanese government is not its interventionism. What is remarkable is that its cajolings have often worked, the reason being that Japanese intervention has 'generally been geared to run with the grain of market forces rather than against it'.

Before the ten-foot-tall MITI official replaces the ten-foot-tall Russian as the chief Western bogeyman, remember that the Japanese government has been neither all-successful nor all-powerful. 'The list of industries in Japan which grew without the benefit of any specific or significant MITI support policy ' argues Mr Oppenheim, 'is extensive and includes sewing machines, cameras, bicycles, motorbikes, transistor radios, colour televisions, tape recorders, magnetic tape, audio equipment, watches, calculators, textile equipment, farm machinery, robots and photocopiers.'

Furthermore, what the West calls export targeting the Japanese might, with better justice, call comparative advantage. 'The more complex the manufacturing process and the more it involves a high degree of organisational effectiveness, the more successful and productive Japanese industry is relative to the West.'

The list of errors goes on and on. Do the Japanese live in 'rabbit hutches"? No: 'the average dwelling space for each Japanese - at 870 square feet - is not much smaller than the average Frenchman's 920 square feet,' in spite of the shortage of suitable land. Do Japanese firms spend more on research and development than their western rivals? No: 'In 1989 Siemens of Germany had the biggest R&D budget of any electronics company bar IBM.' Is the Japanese market closed? No: plenty of high quality western firms have succeeded within it.

The lies have both a cause and serious consequences. The cause is that 'the more industrialists can convince the public how disagreeable the Japanese are, the more likely they are to win hand-outs and protection from their governments.' Their call is for 'fair trade", a notion which, Mr Oppenheim robustly declares, 'is one of the great intellectual frauds of the twentieth century.' Virtually all the western legislation designed to achieve 'fairness' in trade is just protectionism in fancier bottles.

What then are the consequences? One is that western economic effort will be misdirected at trying to make Japan more like the west rather than the other way round. Far more important, however, are the poisoning of peaceful international relations and the erosion of the liberal trading system. Western attitudes towards Japan have been worse than a crime. They have been a mistake, one that must be corrected before it is too late.

GB United Kingdom, EC JP Japan, Asia P2731 Book Publishing TECH Products CMMT Comment & Analysis P2731 The Financial Times London Page VII 918
The FT Review of Business Books (12): Vested interests in the aid trade Publication 930316FT Processed by FT 930316 By PETER MONTAGNON

BRITISH AID AND INTERNATIONAL TRADE by Oliver Morrissey, Brian Smith and Edward Horesh Open University Press Pounds 40, 184 pages

THE THATCHER years were not particularly happy ones for British aid policy. They began with a sharp cut in the aid budget and ended amid controversy over the use of aid to back exports. One of the central arguments of this book is that British aid during this period achieved little either to help the poor in developing countries or even to increase exports.

There was a lot of rhetoric about the commercial value of aid, but some of the more controversial developments, such as the establishment of the Aid and Trade Provision, helped only a few exporters with strong links to the government. Otherwise it was simply a distraction from the low real levels of aid spending.

Whether or not one agrees with this conclusion, this book serves a useful purpose. The formulation of aid policy is not something which grabs much popular imagination even though it is of great importance to Britain's international relation ships. Despite the cuts aid still involved public spending in excess of Pounds 1.5bn in 1989.

Policy-making thus needs to be transparent and those responsible for it accountable. In practice, as the authors point out, aid policy is the outcome of private lobbying between the various departments concerned: the Overseas Development Administration, Department of Trade and Industry, Foreign Office and the Treasury.

Outside influences on them might largely be described as vested interests. Business is concerned with winning orders. The development lobby, consisting mainly of academics and voluntary organisations, is suspicious of anything which does not directly aim to improve the lot of the very poor.

Without books like this one, there would be even less accountability in aid policy. The authors provide some useful explanations of how the policy process works. It usefully chivvies the ODA about the secretiveness of its finances. Its conclusion - that tied aid is not necessarily export-promoting - is doubtless valid, even if it is predictable from a set of authors who identify most strongly with the the development lobby.

The weakness lies more in their tendency to ignore what British aid did achieve in the 1980s. They note the influence that individual ministers have had on development thinking: Mr Christopher Patten on the connection to environment policy, for example, or Baroness Chalker on the role of women, but there is a reluctance to discuss some other important features of aid policy during the period.

Thus Britain's support for structural adjustment programmes led by the World Bank and the reputation, endorsed by the OECD, for quality in its aid spending do not receive the attention they deserve.

Perhaps the authors are so strongly committed to the development school that they are innately suspicious of the World Bank. If so they may be under-estimating the effectiveness of the aid programme's overall contribution to development.

That is a pity. For unless aid can be seen to achieve something there is little point in increasing the budget.

One thing on which almost all interested parties, except normally the Treasury, agree is that Britain spends too little on aid. This book gives a Chancellor intent on finding any possible way of saving money every incentive to cut the aid budget further.

GB United Kingdom, EC P2731 Book Publishing TECH Products CMMT Comment & Analysis P2731 The Financial Times London Page VII 590
The FT Review of Business Books (13): The global alchemist Publication 930316FT Processed by FT 930316 By DAVID DODWELL

GOING GLOBAL: HOW EUROPE HELPS SMALL FIRMS TO EXPORT by William Nothdurft German Marshall Fund, 11 Dupont Circle, NW, Washington DC 20036

FOR MODERN trade alchemists, the perfect export promotion policy may be the ever-elusive philosopher's stone. In his quest for this magical device that might turn base domestic manufacturers into gold-winning exporters, William Nothdurft calls on fellow US alchemists to look to Europe's practitioners of export promotion to discover 'the way'.

The breathless voyage across Europe that he charts in Going Global is fascinating, of immense value to exporters, export organisations and bureaucrats attempting to define their role in export promotion. But, as with the original alchemists, he is probably searching in vain.

He is no doubt correct to berate successive US administrations for leaving export promotion in a muddle. He is also probably right to suggest that European governments have messed with export promotion strategies more than the US. But he is probably wrong to suggest that Europe's government's have in contrast got things notably right.

His pages detail how small and medium sized companies - the principal targets of export promotion effort - play as marginal a part in Europe's export effort as they do in the US, suffering the same limitations, and the same myopias.

As he tracks the immense diversity of programmes tried across Europe, and reveals how short-lived so many of them are, he unwittingly shows a picture as riddled with contradictions, as littered with wasted efforts, and as limited in its success, as he complains of in the US.

A British reader must suspect naivety when Mr Nothdurft opens his book with a eulogy about London's Docklands, where 'one of the world's great trading centres is being reborn'. Regular visitors to Docklands will puzzle at when he stumbled across the 'din of an international airport from which a new generation of merchants commutes to the trading capitals of a soon-to-be-integrated European market.'

Mr Nothdurft seems to discern order in Europe where most others see a chaos not unlike that which he complains about in the US. But this is not to rob the book of its value. Governments have shown a remarkable inability over the past decades to discover how best to help exporters, and Mr Nothdurft's comparison of schemes from the length and breadth of Europe provide valuable food for thought.

XG Europe US United States of America P2731 Book Publishing TECH Products CMMT Comment & Analysis P2731 The Financial Times London Page VII 430
The FT Review of Business Books (10): PW's happy families Publication 930316FT Processed by FT 930316 By ANDREW JACK

ACCOUNTING FOR SUCCESS: A HISTORY OF PRICE WATERHOUSE IN AMERICA 1890-1990 by David Grayson Allen and Kathleen McDermott Harvard Business School Press Dollars 35, 373 pages

IT WAS booze that first brought accountants from Price Waterhouse to the US in the late 19th century, and big bucks that kept them there as their firm grew into one of the largest practices in the world.

In the 1880s, partners travelled from the London office on behalf of British brewing companies to investigate potential American acquisitions. By the early 20th century PW would become an independent firm with twice as many clients in the Fortune 500 as its next largest competitor.

Over many decades, there were tensions with the partnership in Britain, which proved highly reluctant to give the US firm autonomy. In 1901 Arthur Dickinson, the British-born head of the US firm, felt the need to justify vulgar advertising in the form of a circular to business contacts announcing his appointment. In a memo to his London partners, he said:

'We cannot afford to sit down and wait for business to come to us as you can in England; our competitors are all much in evidence . . . even assuming that we have a better reputation and do better work . . . does not go far with people like the majority of the Commercial classes here.'

Corporate histories deserve to be handled with extreme care. The degree of puff makes most of them slip far too easily from the hand. By allowing two professional writers to do the work, PW took the first step to avoid the worst excesses of the genre.

Its editorial control over the content of the final copy is less clear. The sense of independence is not enhanced by a 40-page section listing the name and date of admission of every partner and principal, and a series of photographs resembling the corporate equivalent of a family photo album do not give a good impression of independence.

In fact, the book generally manages to maintain a degree of balance, and occasionally it manages to drop in slight indiscretions culled from internal documents and candid interviews with past or present members.

In a profession which is notoriously secretive about its finances, one of the more interesting revelations is of PW's substantial profitability during the 1970s. A graph shows that net income as a proportion of fees billed was held in the range of 20 to 25 per cent between 1967 and 1978.

But there is little in the book that could be used in evidence against PW. When lawsuits are mentioned, the authors tend to place most emphasis on the firm's defence and rather less on the opposing view. More generally, they periodically lapse into unquestioned praise, or assertions that put PW into a positive light yet which are not justified by their sources. The title of the book is a prime example. Others include such phrases as 'Price Waterhouse's illustrious past century . . .

The most interesting theme to emerge from the firm's history is that many of the issues being debated today in the American profession have been consistently under discussion for decades.

Perhaps inevitably, the authors spend too much time on PW's contribution without providing sufficient context of the wider issues facing its competitors and the professional bodies. Yet on other issues the reader is left wanting to know more. For example, only a few brief paragraphs are devoted, and without much analysis, to the reasons for the failed mergers with Deloitte in 1984 and Arthur Andersen in 1989.

The authors obviously had wide-ranging access to internal working papers which, frustratingly, are unlikely to be made available to other scholars seeking their own interpretation. However, shortfalls aside, Accounting For Success provides a lucid insight into the development of the accountancy profession and one of its largest players over the last century, and is certainly a useful addition to the skimpy existing literature.

GB United Kingdom, EC P2731 Book Publishing TECH Products P2731 The Financial Times London Page VI 693
The FT Review of Business Books (9): The New Age wave of economics Publication 930316FT Processed by FT 930316 By BARRY RILEY

MELTDOWN by William Houston Smith Gryphon Publishers, Pounds 15.99, 202 pages

FROM TIME to time dogged scientists and economists try to find patterns in the chaos of long-term data.

You will have heard of Nicolai Kondratieff, a Russian economist under Stalin who perished in Siberia after predicting that capitalism would revive after the 1930s depression, benefiting from an underlying 45- to 60-year cycle. You have probably not come across, however, the work of Raymond Wheeler, a psychology professor from Kansas who identified a 1000-year climatic cycle, or the New Mexico scientist Iben Browning, grandson of a Cherokee Indian, who detected a volcanic cycle of 8.85 years' duration.

Little of this is given much credence by conventional economists and scientists, but the fact is that such mainstream experts have failed to predict or explain the worst slowdown in the world's developed economies since the depression of the 1930s. It is left to fringe writers like William Houston to explore the reasons for our plight.

Not that Mr Houston is any kind of nutty doomster. He is a practical man, an engineer and company doctor who several years ago foresaw Britain's current slump.

In this book he explores the possible reasons for the renewed depression, although without clearly disentangling the effects of credit cycles from those of climatic variations with possible astronomical or volcanic origins.

He expects a prolonged depression through the 1990s, and the book is designed to offer practical suggestions about survival - both physical and financial.

Lacking a precise theoretical framework the book can seem contradictory: for instance, Mr Houston appears unsure whether in the US inflation or deflation is a bigger danger, and in fact he appears to suggest there could be both at different stages.

In the UK he fears that government income will fall by a third between 1990 and 1994, requiring drastic cutbacks in spending. But he argues that the government should still aim to balance the budget. It will be up to entrepreneurs to seize new opportunities and benefit from cheap capital.

His prescriptions range from eminently logical recommendations of new forms of work to rather dotty suggestions that in a dry climate we should switch our diet to buckwheat, millet and seaweed (let us hope it does not come to that).

But at least William Houston is prepared to be unorthodox, and that is important when the green shoots of conventional economic wisdom have proved so misleading.

GB United Kingdom, EC P2731 Book Publishing TECH Products P2731 The Financial Times London Page VI 441
The FT Review of Business Books (6): In and out the money maze Publication 930316FT Processed by FT 930316 By PETER MONTAGNON

MARKET MOVERS by Mark Jones and Ken Ferris McGraw Hill Pounds 35, 256 pages

MARKETS & DEALERS, THE ECONOMICS OF THE LONDON FINANCIAL MARKETS edited by David Cobham Longman Pounds 12.99, 183 pages

IN THEIR different ways these two books will be of considerable help to those seeking initiation into the ways of the City of London and the financial markets that operate there.

Markets & Dealers is a guide to the City and designed to be read. Market Movers is a guide to international economic indicators that make prices move. It is more of a reference book.

That both the main authors of Market Movers include stints with Reuters news agency on their curricula vitae comes as no surprise, given the lucid objectivity with which they present their information. One can imagine them beavering away at their screens to produce those flash announcements of economic news which have become one of the agency's hallmarks.

It is also refreshing to discover that, far from being content to remain mere messengers, the authors have actually posed the question of what the figures mean. The result is this guide to economic statistics in the five main industrial countries (US, Japan, UK, Germany and France).

The book not only gives details of the source, frequency of publication and make-up of statistics ranging from GDP to money supply and consumer price indices, but also some guide as to how they should be interpreted. This includes assessments on realiability and the impact of seasonality.

Less clear is the relative importance of individual indicators. We are told, for example, that construction is excluded from the monthly UK industrial production figures and that production industries accounted for just over one-third of GDP as of June 1991.

We are not sure what weight financial markets put on this information or how important it is in comparison with, for example, survey data from the Confederation of British Industry. Presumably German markets focus on the M3 money supply aggregate because that is the one the Bundesbank watches most closely. Why the Bank of England - and therefore UK financial markets - focus on M0, M4 and bank lending is left to the imagination.

With a better evaluation of the impact of individual indicators, the pointers towards future trends would have more relevance. Still, it is useful to know that the French Finance Minister normally warns financial markets if forthcoming inflation figures are significantly outside expectations. The book says that the Minister 'should always be heeded'. It would be nice to believe the same of our own dear Chancellor.

One should not be put off by the drear discussion of the economic role of market makers with which Markets & Dealers opens. It is perhaps necessary for the authors of such a book to establish their academic credentials even if the real interest of most readers is likely to be in the book as a comprehensive overview of the City's working.

Like many works assembled from a multitude of authors, Markets & Dealers suffers from loose editing. With a little reordering of the material this book would have become more digestible and its basic strengths more apparent.

There are few books which combine a description not only of the equity market after big bang but also of the other large, but lower profile markets which make up such a large share of the City of London: the eurobond, sterling bond, futures and options markets and, of course, the money market.

Admittedly, the risk is always that such a guide will date. Though sterling commercial paper was only launched in 1986, the market has never taken off. The authors' interest in the subject really does seem rather academic. The chapter on such a fast moving subject as regulation already leaves something to be desired in terms of timeliness. Nonetheless, the book has a shelf life that will help see it through for a while.

GB United Kingdom, EC P2731 Book Publishing TECH Products CMMT Comment & Analysis P2731 The Financial Times London Page V 693
The FT Review of Business Books (7): Lessons for Mr Lamont Publication 930316FT Processed by FT 930316 By DOMINICK COYLE

FOR GOOD AND EVIL: THE IMPACT OFTAXES ON THE COURSE OF CIVILISATION by Charles W. Adams Madison Books, Dollars 29.95, 517 pages

IT IS too late now, given that today is UK Budget Day, but perhaps Mr Norman Lamont, the Chancellor of the Exchequer, could have usefully spent his days of pre-budget purdah in reading - and learning from - this fascinating work of real scholarship on taxation and the impact of taxes on the course of civilisation.

Lamont could then post his copy to President Bill Clinton, whose campaign commitment to ease taxes on America's middle classes has become one of the first victims of his presidency. In turn, Clinton might do a favour for his predecessor, George Bush - but then it is too late to unscramble his 'Read my lips, no new taxes' promise which may have cost him the election.

Perhaps there should even be a copy for Margaret Thatcher, who failed to learn from English history (including a similar fiscal debacle by King Henry VIII) and had another go at introducing a poll tax, only to have it withdrawn by her successor, John Major, albeit without the earlier parliamentary assertion that such a tax was 'unsuited for England'.

Mrs Thatcher may have been weak on the history of taxation and its implications through the ages for empires and governments. For anyone in the same boat - just about all of us - this must be the seminal work.

Just a few nuggets from history. Did you know that biblical Israel split after Solomon's death because his son refused to cut taxes? That Rome rose to greatness owing to a liberal tax regime, but declined under inefficient and corrupt ones? That in Switzerland William Tell was forced to shoot the apple off his son's head as punishment for tax resistance? That in Britain Lady Godiva made her celebrated ride naked on horseback through Coventry as a tax protest? Or that Fort Sumter, where the first shots of the American Civil war were fired, was a Customs House?

Charles Adams has spent the best part of 20 years researching this exhaustive work, in part as a teacher of history, but mostly from his experiences as a tax professional - in the trenches, so to speak. This book builds on his earlier work Fight, Flight, Fraud: The Story of Taxation (1982), but For Good and Evil contains much additional material, including a new chapter on the miracle economies of Japan, Hong Kong, Singapore, South Korea and Taiwan, which introduced low-tax, supply side economics long before Ronald Reagan made it to the White House.

Another new section shows how some US state constitutions seek to protect taxpayers by given them constitutional controls on taxing and spending, perhaps the most celebrated being Proposition 13 in California. Adams also includes a chapter called 'Taming the Monster'; he offers several reforms, all decidedly pro-taxpayers, to make taxes work for good, not evil.

He wants taxpayers to be able to sue the tax authorities for misconduct and (in the US) to grant voters recall powers over district directors of the Internal Revenue Service. His lean is towards indirect taxes and away from a direct taxation regime, quoting in support from Ancient Egypt, Greece, Rome,Spain, France, the Netherlands and England before William Pitt and the introduction of what, in effect, became income tax to finance the war against Napoleon. It was to be a temporary measure, to be suspended six months after the war ended. We know better now, and so does much of the world, since the British have been very successful at exporting the system.

Adams' main conclusions should not be lost on today's governments. Good tax systems go bad unless citizens are able to restrain administrations which have a propensity to spend more than they tax; civilisations tend to self-destruct from excessive taxation; and moderation is an important principle in the design and implementation of any tax system.

Such moderation includes the choice of tax rates and the penalties for evasion, the intrusiveness of tax collection, the need to treat taxpayers equally by avoiding extremes of progressive or regressive fiscal regimes. It is also important to leave the taxpayers with a sufficient margin to encourage endeavour and enterprise. Roll on today's Budget.

GB United Kingdom, EC P2731 Book Publishing TECH Products CMMT Comment & Analysis P2731 The Financial Times London Page V 750
The FT Review of Business Books (8): Little magic, just mystery Publication 930316FT Processed by FT 930316 By BERNARD GRAY

THE NEW MARKET WIZARDS: CONVERSATIONS WITH AMERICA'S TOP TRADERS By Jack D. Schwager HarperBusiness, Dollars 22.50, 493 pages

PERHAPS THE most revealing statement in this book comes in the middle of a conversation between the author and trader Gil Blake.

Schwager asks whether people can buy systems developed by others and use them successfully. Blake thinks not. He argues that systems are more useful to the originator than to anyone else and that trading methods always have to be personalised. Besides, he adds, successful traders do not sell their systems.

Which rather lets the cat out of the bag. Schwager's book, and its predecessor Market Wizards, are in the American tradition started by Dale Carnegie which depend on the idea that you too can make a million simply by following successful practitioners.

Needless to say you cannot - the most that can be gleaned is the odd tip. Those who failed to make a fortune from Schwager's first book are unlikely to do so from his current collection of fireside chats.

The format is also a little irritating. A series of verbatim discussions offers no opportunity for analysis, save that which flows from the interviewer's questions. To give the layman any chance of understanding the jargon-filled exchanges, a large number of explanations also have to be added in parentheses, breaking the flow.

Nor does The New Market Wizards offer the kind of psychological insight which made John Train's The Money Masters such compelling reading.

There are some titbits of interesting information buried inside the 500 pages. It is surprising how often the traders' most profitable bets come when they are convinced that they have to speculate against the consensus.

It is not that they are all permanent contrary thinkers, more that they seem to have a feel for the right time to oppose the trend.

There is also an intriguing but inconclusive account of how the famous traders William Eckhardt and Richard Dennis successfully taught classes of trainees their techniques.

In the end, though, The New Market Wizards offers too much background and too few insights. Sadly, this series of tape recordings stuck between hard covers does not even hint at how such highly successful speculators differ from the thousands of battery-hen traders who sweat it out in dealing rooms around the world.

GB United Kingdom, EC P2731 Book Publishing TECH Products CMMT Comment & Analysis P2731 The Financial Times London Page V 422
The FT Review of Business Books (5): Wanted - a watchdog with real teeth Publication 930316FT Processed by FT 930316 By BARRY RILEY

THE TRANSFORMATION OF THREADNEEDLE STREET by James J. Fishman Carolina Academic Press, Dollars 39.95, 301 pages

SOME SEVEN years after the Stock Exchange's 'Big Bang' and the roughly contemporaneous passage of the Financial Services Act 1986 the regulation of Britain's financial services industry remains troubled. Several high-profile prosecutions for fraud have failed, and the regulatory structure for the investment industry developed under the FSA is plainly not yet in its final shape.

James Fishman, Professor of Law at Pace University, offers the expert outsider's view. His interest was aroused while he was a visiting lecturer at University College, London, in 1986. The valuable contribution of the foreigner is to add an international perspective to what can be a blinkered and introverted debate.

Unfortunately, the author sometimes shows a slightly uncertain grasp of the British scene, not least in the title: he does not appear to realise that the Threadneedle Street connection relates purely to the Bank of England rather than to the broader financial services industry. Irritatingly, too, the map on the front of the dust jacket manages to misspell Moorgate, one of the City of London's most famous streets. One of the basic themes - the conflict between the 1980s desire to deregulate the markets, yet at the same time to improve investor protection - is insufficiently developed.

However, the author has certainly done his homework. He discusses with some sympathy the development of financial services regulation in the UK in the 1980s, but his final criticisms are fairly devastating.

Regulation of retail investment products such as life assurance should have remained the responsibility of a separate body, he says, as was the case right at the beginning before the Marketing of Investments Board Organising Committee was rolled up into the Securities and Investments Board in early 1986. The SIB itself should focus upon enforcement, which he regards as the main area of concern. 'Unless the enforcement approach is changed, the next boom cycle in the financial markets will demonstrate the system's fatal weakness,' he warns.

Early on there were lengthy battles between the proponents of self-regulation - the preferred British approach - and those who wanted a stronger element of statutory regulation on the lines of that implemented by the US Securities and Exchange Commission. There was in the event great reliance on self-regulatory organisations, but things began to go wrong.

Sir Kenneth Berrill, the first SIB chairman, failed to build a consensus through dialogue, says Mr Fishman. A monstrous rule-book of 430 pages weighing over 4lb had been built up by 1987. The Department of Trade and Industry under Norman Tebbit and Paul Channon appeared to favour a highly restrictive rulemaking approach, and the abrupt reversal of this under Lord Young after the 1987 election did not entirely redeem the situation.

Berrill imposed apparently arbitrary policy choices; the introduction of polarisation for retail investment products was done even though 'SIB had not a clue as to the impact of such a change on the life insurance industry's structure.' Young allowed Berrill's contract to lapse in May 1988 and replaced him with the more communicative and sympathetic David Walker, an executive director of the Bank.

During Walker's four-year chairmanship there was progress in developing slightly more user-friendly rules, and tempers cooled. However, the retail side of regulation remains in a serious mess, to the extent that the third chairman, Andrew Large, has declared the need for a 'step change' in the standard of regulation in this area.

James Fishman says that one of the big problems has been the inability of the SIB to differentiate sufficiently between the wholesale and retail markets. In the former, unnecessary disclosure has increased transaction costs and created grievances. But in the latter disclosure is essential to correct substantial informational asymmetries between buyers and sellers.

His proposed solutions are drastic and, it has to be said, rather muddled. He recommends that a separate retail investment oversight body should be hived off, on the general lines of the MIB. The Bank of England itself should take on general oversight responsibility for financial services regulation. The SIB itself should focus on enforcement across a wide area of fraud. 'There is a desperate need for a full-time cadre of mostly career employees to investigate and prosecute securities fraud,' he argues.

Perhaps so, but he fails to make the case convincingly. There is little discussion, for example, of the implications for the Serious Fraud Office or the Fraud Investigation Group. He also appears ignorant of the extent to which the Bank of England has been damaged by the BCCI affair. However, Mr Fishman casts valuable fresh light on the continuing contradictions within the British framework of financial regulation. Changes there will have to be, even if not necessarily along precisely these lines.

US United States of America P2731 Book Publishing TECH Products P2731 The Financial Times London Page IV 834
The FT Review of Business Books (4): Consumers through the ages Publication 930316FT Processed by FT 930316 By GARY MEAD

CONSUMPTION AND THE WORLD OF GOODS Edited by John Brewer and Roy Porter Routledge, Pounds 75, 564 pages

LIKE A vast jigsaw puzzle, this enormous 25-essay volume, ranging from the encyclopaedic (patterns of English and Anglo-American consumption between 1550 and 1800) to the microscopically detailed (an examination of a Lancashire woman's habits of consumption between 1751 and 1781) is only fully satisfying once the final piece slots home.

Here we are in the final years of the 20th century, still without a taxonomy of consumerism. Perhaps the subject is just too vast. The University of California at Los Angeles has decided to try to rectify our lack of understanding and this monster volume - at a monstrous but no doubt justifiable price - is the first of three on culture and consumption in the 17th and 18th centuries.

Focusing on those two centuries as a perceived moment of shift from individual into mass consumption - though several of the contributing scholars question that premise - the presence of Adam Smith quietly dominates. 'Consumption is the sole end and purpose of all production and the interest of the producer ought to be attended to, only so far as it may be necessary for promoting that of the consumer. The maxim is so perfectly self-evident, that it would be absurd to attempt to prove it,' said Smith.

Yet, as Joyce Appleby points out in her contribution: 'Smith was far from happy with the human propensity to consume, characterising it variously as a fascination for 'baubles and trinkets', a passion for accumulating objects of 'frivolous utility' and, worse, a vehicle for deception with the false promise that wealth will bring happiness.' If the 1980s saw emphasis on the first Adam Smith quote, the 1990s look like promoting the second.

The contributors pose many important questions, though answers are more scarce. Part of the effort, well elucidated in the opening section by the editors, is to find a home within academic exploration for study of all facets of the consumption of goods, a home which eschews crude Marxism and does not superficially relegate such a key element of our lives to fashion.

Appleby again: 'Why, in the floodtide of Enlightenment enthusiasms for freedom - free speech, free inquiry, free labour, free trade, free contract - was free consumption never articulated as a social goal? . . . Why is it . . . that consumption, which is the linchpin of our modern social system, has never been the linchpin of our theories explaining modernity?'

Part of the explanation for that lacuna might well come from the paradoxes inherent in consumption, as Roy Porter so entertainingly delineates in an essay which considers consumption as both health (eating and drinking) and disease (tuberculosis). 'The dialectics of wealth and waste were worrisome. Buying and selling were vital for life-giving commerce. Yet what was spending, but the dissipation of accumulated resources, leading to economic entropy? Conspicuous consumption was conspicuous waste.'

By the mid 19th century the subterranean revolution from individual to mass consumption was over and Thomas Carlyle could write with conviction that 'cash payment has become the sole nexus of man to man'. Mass consumption became used as a means of political hegemony: by 1775 the American colonies were taking 9,000 different commodities, a trade frequently tied up by legal prohibitions against alternative sources.

Once started, this ball keeps rolling. Jean-Christophe Agnew quotes a US soldier from the second world war: 'I am in this damn mess as much to help keep the custom of drinking Cokes as I am to preserve the million other benefits our country blesses its citizens with.'

This book deserves to be widely read, for it contains the seeds of something much greater than its own absorbing research. Sources as diverse as US trend-spotting gurus and the Japanese advertising agency Dentsu tell us we are in for a period of extended shunning of mass-marketed consumables, as purchasers become more interested in individualising consumption habits. They also tell us that will not be a phenomenon which dies when the recession lifts. If that is so, then understanding the historical and cultural roots of mass consumerism will be imperative. This book provides an excellent starting point.

GB United Kingdom, EC P2731 Book Publishing TECH Products CMMT Comment & Analysis P2731 The Financial Times London Page III 741
The FT Review of Business Books (3): A culture clash of capitalist creeds Publication 930316FT Processed by FT 930316 By EMMA TUCKER

CAPITALISM AGAINST CAPITALISM by Michel Albert Whurr Publishers Pounds 14.95, 260 pages

WHEN MICHEL Albert, president of the insurance group Assurances Generales de France, wrote his book Capitalism against Capitalism, he wanted to warn the European Community against the dangers of unfettered, US-style capitalism.

His thesis is that in the absence of communism as a realistic alternative, two strands of capitalism are at loggerheads with each other. In one corner there is what Albert calls the 'neo-American' model based on individual achievement and short-term financial gain; in the other is the Rhine model, of German pedigree but with strong Japanese connections. This model emphasises collective success, consensus and long-term concerns.

The Rhine model, 'unheralded, unsung and lacking even nominal identity papers', has shown itself to be the more efficient of the two strands, says Albert. But in spite of this, the less efficient, more aggressive of the two variants (the neo-American model) is in the ascendant, representing 'a clear and present danger'.

To drive his point home, Albert has littered his book with some astonishingly sweeping claims. Whatever the shortcomings of the US system, it is hard to take him seriously when he writes: 'It would no doubt come as a shock to the Brazilian lecturer, the Egyptian intellectual or the Nigerian don to find out that there is more than one kind of market economy, to be shown the proof that Rhine capitalism does not follow the same rules he has seen acted out in last night's sub-titled episode of Dallas - and that its results are, on the whole, more impressive.'

Or, another example; 'In former times the poor revolted; today, dulled to a stupor by the drab ordinariness of their squalor (which never appears on their TV screens), they do not even bother to vote.'

The cavalier way in which Albert advances his arguments is not the only problem. Its main defect is that the English version (translated by Paul Haviland) is in need of updating. Albert's thesis, that the neo-American model is in the ascendant, is rendered less relevant by the day and many of the book's claims sound dated.

'The veneration of Reaganism has been growing steadily since the mid-1980s. From Brasilia to Lagos, it is today the very embodiment of the ideals of success, prosperity and vitality,' he says, in a chapter entitled 'America is Back' which sets out to show how Reagan's America is spreading its influence across the globe.

Not even Americans remain devotees of Reaganomics. They have just elected a President whose economic policy - an investment strategy to stimulate growth, reduction of the federal budget deficit and reform of the health care system - smacks more of the so-called Rhine model than the non-interventionist approach of presidents Reagan and Bush.

Elsewhere too, recession has altered attitudes to economic policy. In the UK John Major is disassociating himself from some of the more excessive free-market policies of his predecessor and drifting towards an industrial policy. The ex-Comecon countries that opened their arms to the 'neo-American' model in the immediate aftermath of the collapse of the Berlin wall are now taking a more sceptical approach.

The author is on stronger ground in his actual critique of the US economic system. It is surely right to ask why America leads the advanced nations in drug abuse and crime; why the public education system is 'in tatters'; why the infant mortality rate is twice that of Japan. He is equally cutting about the failings of the US financial system, where the short-term satisfaction of shareholders comes first, to the neglect of research and development and skills training. This, he says, stands in poor contrast to the 'well managed consensus' of the Rhine model.

While these questions remain relevant, overall the debate has moved on too quickly. Recent developments suggest that the two strands of capitalism are moving closer rather than further apart. In the US, an interventionist president has been elected while in Europe doubts about the social chapter of the Maastricht treaty in countries other than the UK suggest opinion is shying away from excessive regulation.

Meanwhile, it would be interesting to hear Albert's thoughts about the strains that the recession is putting on that supreme example of the Rhine model, Germany.

GB United Kingdom, EC P2731 Book Publishing TECH Products CMMT Comment & Analysis P2731 The Financial Times London Page III 750
The FT Review of Business Books (2): Faded beauty of the Swedish Model Publication 930316FT Processed by FT 930316 By ROBERT TAYLOR

THE RISE AND FALL OF THE SWEDISH MODEL by Hans de Geer Carden Publications Pounds 25, 208 pages

THE Swedish Model seduced the outside world for a long time. For many overseas admirers the paradigm of the good society - rational, efficient, progressive - to its enemies it was Aldous Huxley's Brave New World of stifling conformity and well-meaning authoritarianism.

Swedes themselves saw the Model less as an abstraction or prototype and more as a way of life in which a dynamic free market economy coexisted harmoniously with a huge and generous public sector based on high taxes. This corporatist system worked impressively for nearly 30 years and helped make Sweden one of the world's most prosperous economies.

Today the Model appears to be drowning beneath the stormy waves of global recession. Sweden's mounting unemployment, its huge foreign debt and economic stagnation have combined to undermine faith in the country's exceptionalism. Now it is having to adjust painfully to outside pressures with its social and economic integration into western Europe.

But adapt it will. The value of Hans de Geer's book lies in its focus on a neglected part of the Model, namely its dependence on the active role of SAF - The Swedish Employers' Federation. Without the consent of capital it is difficult to see how the Model could ever have grown to maturity.

Formed in 1902 in reaction to the rise of the LO manual worker union federation, SAF grew rapidly into a formidable association. With centralised sanctions over its disparate members and a firm commitment to the absolute right of employers to manage, it established a common fund to fight strikes and impose lock-outs. But SAF was never really an anti-union organisation. On the contrary - as De Geer shows - it agreed to recognise trade unions and collective agreements from its early days, while in return the trade unions gave up the principle of the closed shop.

Sweden's industrial consensus was never a flabby middle way but a hard-headed bargain between capital and labour on their mutual self-interests. While SAF wanted 'unchanging labour costs' out of it, the LO favoured solidaristic deals based on wage equality. As the author emphasises, it was not until the mid-1950s that the central bargaining system emerged. Over the following 15 years SAF and LO often toured the world together selling the virtues of the Model they created.

But by the end of the 1960s Sweden's Labour Movement had launched a workplace reform programme based on legislation, not negotiation, that brought an end to employer prerogatives, while the rapid growth of the public sector and arrival of an organised white-collar salariat weakened the symmetry of SAF-LO bargaining. Wage drift undermined national pay deals and labour costs grew uncompetitive.

The strain this imposed on SAF was considerable. It brought a clear ideological shift with a more robust defence of free markets. In more recent years SAF began to shed its corporatist ways and champion decentralised pay bargaining. Its leaders talk more boldly today than they used to do about competition and private enterprise.

But this is all a matter of degree. What de Geer calls Sweden's 'negotiation culture' remains intact beneath the surface of its industrial life. The power balance has shifted more towards employers and away from unions, but not dramatically so. As the book makes clear, continuity remains as strong as change in Sweden. The Model may after all just be having a face lift.

GB United Kingdom, EC P2731 Book Publishing TECH Products P2731 The Financial Times London Page II 612
The FT Review of Business Books (1): Hammer horror story - The man behind the Occidental myth Publication 930316FT Processed by FT 930316 By BRONWEN MADDOX

THE DARK SIDE OF POWER: THE REAL ARMAND HAMMER by Carl Blumay with Henry Edwards Simon & Schuster Pounds 20, 494 pages

'THE ONLY way to build the future is to build it on lies' was the maxim of Armand Hammer, the founder of Occidental Petroleum, who died in 1990 at the age of 92. According to Carl Blumay's chronicle, Hammer rarely departed from that principle.

Blumay should know. Now in his 70s, he was in charge of public relations for Armand Hammer and Occidental for 25 years. He devoted every minute - and his marriage - to constructing the public image that Hammer was a business genius, a philanthropist and humanitarian, with influence over the Kremlin and the White House. The reality, Blumay says, was a backstage drama of bribes, manipulation, huge financial losses, a gun-toting delinquent son and a collection of high-cheekboned mistresses on both sides of the Iron Curtain.

When Blumay took his place in the drama in 1955 he reckoned that the American public 'hungered for a business hero who satisfied the requirements of the Faust legend: a capitalist with the fame and charisma of a movie star and a thirst for power and wealth that made him willing even to sell his soul to achieve his dreams, and that's how I decided to sell him.'

Selling Hammer meant putting out to the stock markets a stream of press releases which inflated the value of Oxy's oil reserves. It meant helping the company to stonewall the Securities and Exchange Commission's many years of investigations - Oxy's executives were relieved when the SEC found only a fraction of the 'questionable payments' that it suspected. It meant helping hide for years one of Occidental's most damaging secrets - now seen as one of America's worst pollution disasters - that the company's subsidiary Hooker had contaminated land and water tables across the US with thousands of tonnes of poisonous chemical waste.

Not all of Blumay's campaign was successful. The stock market rapidly became hostile to Hammer's authoritarian style. On the day that Hammer slipped in the bathtub and cracked three ribs, Occidental's market value rose by Dollars 306m; when he died it rose by nearly 10 per cent.

But the only time when Hammer was touched by real fear of reprisals, according to Blumay, was when accused as part of the Watergate prosecutions of illegal payments to Richard Nixon's US presidential re-election campaign. Overnight he exchanged his compulsive travelling between the Soviet Union, Libya, Venezuela and California for the sanctuary of a cardiac ward. Forced eventually to present himself in court, he appeared in a wheelchair, huddled inside an over-large suit, wired up to heart monitoring equipment and surrounded by lawyers who threatened the judge with lawsuits if he collapsed. Let off with a fine, he threw away the chair and danced a victory jig. As he said to Blumay, his body was just another corporation - and he was in control.

Although Hammer professed that 'money is my first, last and only love', like many tycoons he was remarkably good at losing it.

Blumay catalogues how money was frittered away on attempts at deals with the Soviets that never stood a chance of being successful. 'He worships the Soviet leaders because they have the kind of power he craves', Blumay told Hammer's pet biographer.

That unprofitable courtship is just one of the many uncanny echoes of Robert Maxwell's life, despite Hammer's proclamation that 'there has never been anyone like me - and my like will never be seen again'. Like Maxwell, he denied for years that he was Jewish but changed his mind shortly before his death, despite his persistent refusal to put pressure on the Soviets to allow Jews to leave. He left it late, though: the bar mitzvah he had planned had to be rapidly altered to a memorial dinner.

People were drawn to work for him, as they were for Maxwell, not just by the money but by the mischievousness of entering a world which ignored normal rules. One executive is reported to have been 'amused by the idea of bugging a call from the President'. According to Blumay, the sacrifices were heavy: one executive was sent to jail, and Hammer's Russian mistress may have been murdered because of the connection.

But Blumay is weak on the motives of Hammer's followers beyond describing them as 'moths to a flame'. More important, he says little of his own reasons for helping Hammer mislead the outside world for so long and then for writing this book. He pleads at the start: 'If his were errors of commission, mine were errors of omission'. The question is whether his account can now be believed.

The sources throughout the book are few and hard to corroborate: largely Blumay, Hammer himself - referred to familiarly as 'Armand' - and Hammer's brother Victor, now dead. The book's reproduction of entire paragraphs of Hammer's speech over three decades is implausible, and many of the allegations of bribes are unsubstantiated. Nor is Blumay informative on where the money came from to build the empire, despite a smattering of references to stock issues and bank loans. The suspicion is that he never knew the financial details.

In spite of insisting that he was 'forced to question the credibility of everything (Hammer) told me', Blumay shows little sign that he did so. He can be astonishingly incurious: one journalist's tip that Hammer had mafia connections is brushed off in the phrase 'no matter what Armand had been up to in 1934'.

The book is most convincing not on the details of chicanery, but on recreating the distortions of Hammer's paranoia and arrogance. The SEC, Colonel Gaddafi and Venezuela's President Perez are first magnified as enemies bent solely on Hammer's destruction, and then swatted away as insignificant gadflies.

This account, which is exhaustingly chronological, is in the end gripping mainly because of the sense that eventually the truth will out. But that happened just weeks after Hammer's death, long before this book's publication, when financial reality forced Occidental to sell about Dollars 3bn of assets and write off Dollars 2bn against profits.

Blumay, who eventually resigned, clearly belongs to the class of 'disgruntled former employees' whose comments Hammer instructed the world to ignore. Blumay says that in his experience these executives normally told the truth. In his case, while the product of his pique is entertaining, it still leaves room for a definitive book telling the whole truth about Armand Hammer.

GB United Kingdom, EC P2731 Book Publishing TECH Products CMMT Comment & Analysis P2731 The Financial Times London Page I 1129
London Stock Exchange: New highs and lows for 1992/93 Publication 930316FT Processed by FT 930316 By CHRISTOPHER PRICE, JOEL KIBAZO and STEVE THOMPSON

NEW HIGHS (83).

BRITISH FUNDS (1) Treas 6 3/4 pc '95-98, OTHER FIXED INTEREST (2) LCC 3pc '20 Aft, N'wide Anglia 3 7/8 pc IL 2021, AMERICANS (3) Allegheny & Western, American Express, Merrill Lynch, CANADIANS (2) Can Pac 4pc Deb, Hudson's Bay, BANKS (2) Bank of Ireland, Bank of Scotland 9 3/4 pc Pf, BREWERS (1) Wetherspoon (JD), BLDG MATLS (1) Lilleshall 9pc Prf, BUSINESS SERVS (3) ADT, British Data Mgmt, Serco, CONTG & CONSTRCN (1) Cussins, ELECTRICALS (2) Critchley, Motorola, ELECTRONICS (8) Bowthorpe, Ferranti Intl, Gresham Telecomputing, Hoskyns, Kode Intl, Linx, Peek, Sage, ENG GEN (6) Clayhithe, Concentric, Fairey, Metalrax, Ransomes 8.25p Pf, Transfer Technology, FOOD MANUF (1) Borthwicks, FOOD RETAILING (1) Geest, HOTELS & LEIS (3) Compass, Owners Abroad 9.75p Pf, Whitegate Leisure, INSCE COMPOSITE (1) Domestic & General, INSCE LIFE (2) Britannic, Utd Friendly B, INV TRUSTS (12) EFM Japan, Do Wts, Fleming Enterprise, Fleming Japanese, Do Wts, Latin Amer Extra Yield, Mid Wynd, Multitrust, Murray Inc B, New Frontiers 6 1/2 pc Ln 2010, Nth Amer Gas, Pacific Assets Wts, MEDIA (3) Abbott Mead Vickers, LWT Cv Pf, Watmoughs, MERCHANT BANKS (1) Schroders, MTL & MTL FORMING (1) British Steel, MISC (2) Alumasc, Great Southern, OIL & GAS (1) Hardy, OTHER FINCL (2) Burlington, Cater Allen, OTHER INDLS (2) BTR Wts, Do 1992/93, PACKG, PAPER & PRINTG (2) Low & Bonar, Macfarlane, PROP (4) Frogmore Estates, Gt Portland Ests 9 1/2 pc 2002, Property Security, St Modwen Props, STORES (3) Great Universal, Marks & Spencer, Next, TEXTS (5) Claremont Garments, Coats Viyella, Leeds, Martin Intl, Parkland A, TRANSPORT (2) Manchester Ship Canal, Powell Duffryn, WATER (1) Mid Kent, MINES (2) Caledonia, Sons of Gwalia.

NEW LOWS (5).

BUSINESS SERVS (1) Reed Exec, HOTELS & LEIS (1) Eurocamp, PACKG, PAPER & PRINTG (1) Intereurope Tech, PROP (1) Rowlinson, STORES (1) Dunhill.

Other market statistics, Page 32

GB United Kingdom, EC P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 48 351
London Stock Exchange: US storm damage Publication 930316FT Processed by FT 930316 By CHRISTOPHER PRICE, JOEL KIBAZO and STEVE THOMPSON

The massive damage wrought by what are seen as the worst storms across the east coast of the US this century led to an initial marking down of a UK composite insurance sector buffeted in recent years by a series of natural disasters, capped by last year's Hurricane Andrew.

But the markdown and ensuing selling pressure proved shortlived as insurance specialists concentrated instead on the likelihood that the latest disasters would trigger the long-awaited upturn in US insurance premiums. The performance of shares in the biggest US insurance groups when Wall Street opened gave credence to London's view that premiums would almost certainly be raised. General Re was up around Dollars 2 5/8 , Marsh & McLennan 1 1/8 firmer and AIG over a point higher shortly after the US market opened.

General Accident, whose US catastrophe reinsurance is triggered if losses rise above Dollars 40m, was seen as possibly the worst affected, and the shares settled 8 off at 589p. Royal, with a reinsurance trigger level of Dollars 25m, rallied sharply to end 9 ahead at 305p after an early fall to 293p. Commercial Union, with a reinsurance mark of Dollars 15m, managed a minor rise to 607p. Sun Alliance, which has negligible exposure to the US, rose 11 to 350p.

Industrial group IMI, which reported a decline in profits, moved sharply forward, with the market cheered by the held dividend. The shares gained 11 at 270p in trade of 3.3m.

In spite of an upbeat analysts meeting, many remained sceptical about the prospects for the current year and several moved to downgrade full year profit expectations. These Included Mr Sandy Morris at NatWest Securities, who trimmed his 1993 estimate by Pounds 1.5m to Pounds 71.5m. He blamed the cut on the continued weakness in the rest of Europe, where the company derives around 37 per cent of operating profits, and IMI's moderate exposure to the recovering US economy.

The signing of a joint venture agreement for cigarette production in the Ukraine led to positive sentiment in BAT and the shares put on 8 at 956p. Transfer Technology continued to be the subject of strong demand, following the recent favourable figures. The shares added 33 at 558p. Vague hints of a sell recommendation for Gestetner left the shares 12 lighter at 118p.

English China Clays rose 5 to 458p after reporting a maintained dividend.

British Airways firmed 3 to 298p ahead of confirmation that its Dollars 300m investment into USAir has been cleared by the US government. Volume came to 3m shares.

Bid talk returned to a generally positive property sector, with Hammerson once again the name touted as a possible target. However, one dealer suggested that a stock shortage in one type of the group's shares had triggered buying in the other as the two had moved apart, inflating the rise. By the close the ordinary shares had jumped 21 to 387p and the 'A's 26 to 361p.

The building materials sector, among the market's worst performing areas last week, staged a good rally amid hopes of a cut in German interest rates. Wolseley moved ahead 17 to 583p, RMC 12 to 588p and Redland 10 to 455p.

Second line store issues did some catching up after Friday's strong session for the leaders. T & S Stores rose 5 to 164p, Amber Day 6 to 62p and Body Shop 6 to 190p. The decision by Argos to close its loss-making Chesterman furniture stores lifted the stock 9 to 295p.

There was renewed bid talk around Geest and the shares jumped a further 12 to 480p. A US food group is rumoured to be on the prowl.

Weekend press comment benefited Perkins Foods, up 7 at 113p, and United Biscuits, ahead 5 at 383p.

A buy note from Paribas on Queens Moat Houses helped the shares advance 4 to 49p in turnover of 5.6m. The French-owned broker believes recent weakness to be overdone and that the stock is poised for recovery. Two small but loss-making leisure stocks, European Leisure and Whitegate Leisure, both moved back into the black. The former rose 1 1/4 to 5 1/2 p and the latter 5 to 27p.

The recent run of big turnovers in Amstrad continued, with 11m traded yesterday as the stock gained 2 1/2 at 38p - its highest level since June last year. This week sees the expected launch of the company's latest new product, a 'personal digital assistant' computer.

Delta advanced 9 to 444p following the maintained dividend, while GEC rallied after last week's slide and settled 6 1/2 ahead at 300p; Phillips & Drew Fund Management said it no longer had a notifiable interest in GEC shares. Shareholdings in excess of 3 per cent have to be made public, according to the Stock Exchange rules.

IMI Gestetner Holdings Hammerson Investment Property and Development Corp Geest Queens Moat Houses GB United Kingdom, EC P7011 Hotels and Motels P6231 Security and Commodity Exchanges P6512 Nonresidential Buildings Operators P6719 Holding Companies, NEC P34 Fabricated Metal Products P35 Industrial Machinery and Equipment P508 Machinery, Equipment, and Supplies P5148 Fresh Fruits and Vegetables P0139 Field Crops Ex Cash Grains, NEC CMMT Comment & Analysis MKTS Market data P7011 P6231 P6512 P6719 P34 P35 P508 P5148 P0139 The Financial Times London Page 48 899
London Stock Exchange: HSBC strong Publication 930316FT Processed by FT 930316 By CHRISTOPHER PRICE, JOEL KIBAZO and STEVE THOMPSON

The continuing wrangling over political reforms ahead of the handing over of power in Hong Kong in 1997 caused only a mild ripple of unease in shares of HSBC, holding company for Hongkong and Shanghai Banking and its merged Midland Bank. HSBC was among the best performers on the London market after it revealed a much better than expected final dividend.

The Hong Kong market itself came under heavy pressure after Chinese officials attacked British proposals for the colony, causing a general marking down in London of leading UK groups with significant interests in Hong Kong.

HSBC's profits were slightly disappointing, according to dealers, but the dividend was ahead of the most optimistic forecasts, pitched around the 15.5p to 16p mark.

The shares were tentatively marked up to 609p by dealers wary of the steep retreat on the Hong Kong market. Buyers moved in quickly, however, and drove the stock up to a close of 624p for a net gain of 20. Turnover was a good 7.7m.

Other leading UK stocks heavily influenced by events in Hong Kong performed relatively well. Standard Chartered settled a net 4 higher at 704p ex-dividend, while Cable and Wireless, which derives more than half of its earnings from Hong Kong, settled only a fraction off at 712p, having fallen to 698p at the outset of trading. Inchcape rose 5 to 588p.

HSBC Holdings GB United Kingdom, EC P6719 Holding Companies, NEC P602 Commercial Banks CMMT Comment & Analysis P6719 P602 The Financial Times London Page 48 271
London Stock Exchange: Owners raided by Cook Publication 930316FT Processed by FT 930316 By CHRISTOPHER PRICE, JOEL KIBAZO and STEVE THOMPSON

THE BATTLE for control of Owners Abroad, the UK tour operator fighting a hostile Pounds 290m bid from its smaller rival, Airtours, took a new twist yesterday as Thomas Cook made an early raid in the market to capture an 8.4 per cent stake in Owners.

The move by Thomas Cook, which is controlled by German travel group LTU, adds further spice to the bid battle which many in the market believe is now too close to call. The Airtours offer closes today at 1pm. Last week, Thomas Cook made a tender offer for 12.5 per cent of Owners at 150p a share conditional on the Airtours bid lapsing.

Dealers suggested that Thomas Cook may have purchased its stake from UBS Phillips & Drew Fund Management, paying 152 1/2 p a share for lines of 9m, 2.1m and 1.9m shares. However, leisure specialists said the fact that the institution was considered supportive of the present management meant that the dawn raid changed little in the complex arithmetic over who was likely to win.

But there were also suggestions that Gartmore Investment Management had sold a 1.3 per cent share interest, part of its 7 per cent stake in Owners, to Thomas Cook. It was enough to unsettle some investors, worried that the German move implied a shift in favour of Owners' current shareholder supporters, who have so far been seen in the market as losing the public relations battle to Airtours. Owners closed 9 down at 138p after turnover of 28m. Airtours slipped a penny to 338p.

Crucially, the Thomas Cook stake combined with the holdings of Owners' directors is now more than 10 per cent and will prevent Airtours from going over the 90 per cent required for full control, even if its offer succeeds today. It also sent analysts home speculating over Thomas Cook's strategy in the event of an Airtours victory, with some suggesting that it might attempt to buy some parts of Owners' operations.

Owners Abroad Group Airtours GB United Kingdom, EC P4724 Travel Agencies P4725 Tour Operators CMMT Comment & Analysis P4724 P4725 The Financial Times London Page 48 375
London Stock Exchange: Equities firmer ahead of the Budget Publication 930316FT Processed by FT 930316 By TERRY BYLAND, UK Stock Market Editor

A TRADING week likely to be dominated by today's Budget speech in the UK parliament, but also by hopes for cuts in interest rates both in Germany and in Britain, made a confident start yesterday. Ex-dividend adjustments in several blue chip shares restrained the day's gain in the FT-SE 100 Index to 6.5; but for these technical factors, the rise would have been twice the reported figure.

Equity strategists expect Mr Norman Lamont, the UK chancellor of the exchequer, to announce some fairly moderate tightening of fiscal policy today, but believe he will avoid any risk of jeopard-ising the fragile recovery in the UK economy; economic optimism was encouraged by news that UK manufacturing output increased by 0.8 per cent between December and January.

At the same time, a further cut in UK base rates is certainly 'on the agenda' and London has become significantly more confident of a reduction in German rates following the recent trimming of the Bundesbank's money market rates.

Early falls in the Footsie reflected the ex-dividend adjustments in such leading names as ICI, Barclays, RTZ and Abbey National. Hardly a sector was immune from these pricing factors and the Footsie dipped 7.2 to within 9 points of the 2,900-mark in early trading.

However, with the March future on the FT-SE 100 Index still positive with only a few days' life left in the contract, shares soon rallied and moved slowly ahead. At best the market was more than 12 Footsie points up, before interest died away towards the close of the final pre-Budget trading session in equities.

The closing reading showed the FT-SE 100 at 2,922.4 for a net gain of 6.5. Seaq trading volume slipped to 578.1m shares from Friday's 769m. But all the signs have been that retail, or genuine investor, business in equities has remained high, reflecting improved confidence in prospects for economic recovery and further interest rate cuts. The FT-SE Mid 250 Index gained 12.5 at 3,112 yesterday, and non-Footsie business made up nearly 72 per cent of the day's total.

On Friday, retail business was worth Pounds 1.54bn, bringing a total of Pounds 8.78bn for the week. The increased level of retail business has now extended for the past five months and has significantly improved levels of profitability among London-based securities firms.

Underlying confidence in the outlook for interest rates across Europe was reflected in gains in shares in UK property and building and construction companies yesterday. Rises were strongest in UK building groups with interests in Germany. London's hopes of lower rates in Germany were not discouraged yesterday by a repetition of strong anti-inflation views by the president of the Bundesbank.

A further indication of the positive mood underlying the stock market came from bid-related activity, both in the leisure and property sectors. A market raid was mounted on shares of Owners Abroad by Thomas Cook, the German-owned travel agency, ahead of today's closure of the Pounds 290m hostile bid by Airtours.

The latest developments in Hong Kong were outweighed for UK investors by profits and an excellent dividend payout by HSBC Holdings.

GB United Kingdom, EC P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 48 554
London Stock Exchange: Equity futures and options trading Publication 930316FT Processed by FT 930316 By JOEL KIBAZO

THE DERIVATIVES sector once again experienced an uneventful session as dealers waited for the outcome of today's Budget speech from the UK chancellor, writes Joel Kibazo.

In futures, the first trade in the March contract on the FT-SE 100 Index, now in its last week of trading, was struck at 2,924, some 4 points above last Friday's close.

Early buying saw it rise to the day's peak of 2,935 at around 10am, after which the contract drifted lower with little follow-through buying. General profit-taking saw it fall back to 2,925 over the lunchtime period.

The low of the session at 2,915 was seen just before the opening of Wall Street, after which March crawled forward on bargain hunting and the firmness in New York.

It closed at 2,921, a slight discount to the underlying cash market. Dealers said the day's turnover of around 10,000 contracts in March was due to rolling forward into the June contract. It saw volume of 5,556 lots.

Traded options were also dull and saw volume of 26,281 by the close of business. Trading in the FT-SE 100 option was very poor indeed, reaching only 3,907 lots, while the Euro FT-SE 100 option had business of 1,037 contracts.

Amstrad led the way among stock options, trading 1,788 contracts with the September 35 puts the busiest series, followed by British Gas at 1,507.

GB United Kingdom, EC P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 48 261
World Stock Markets (America): Dow rallies in spite of fresh drop by bonds Publication 930316FT Processed by FT 930316 By PATRICK HARVERSON NEW YORK

Wall Street

US STOCKS traded in a narrow range yesterday, holding on to modest gains in spite of another fall in bond prices, writes Patrick Harverson in New York.

The Dow Jones Industrial Average ended 14.59 better at 3,442.41, the high for the day. The Standard & Poor's 500 picked up 1.60 to 451.43 and the Nasdaq composite improved 2.43 to 695.21. New York SE volume was light by recent standards at 195.9m shares, and rising shares outpaced declines by 1,033 to 834.

In the wake of Friday's fall in equity prices, the share markets proved their resilience yesterday by opening firmer, with prices showing solid gains across the board in the first 30 minutes of trading.

But the gains proved primarily a knee-jerk reaction to the previous session's losses. In the absence of fresh economic news, the markets struggled to find a direction, allowing prices to slip back for a time from their highs. Sentiment was undermined, also, by a sudden downturn mid-morning in the bond market, where inflation-sensitive investors took fright at a sudden rise in commodity prices.

Equities, however, were supported by continued strong inflows of cash as investors showed few signs of turning away from stocks, which they view as offering the best potential returns in the low interest-rate environment.

Nike jumped Dollars 4 1/2 to Dollars 76 3/8 after the sports shoe and apparel maker reported fiscal third-quarter net income of Dollars 89.5m, up from Dollars 82.5m and a record for the company. Although the profits were slightly below market expectations, investors were impressed by reports that Nike's orders for the next few months were 21 per cent above the com-parable period a year ago.

Although bank stocks, troubled by rising interest rates, recovered from early weakness, BankAmerica failed to rally, ending Dollars 1 3/8 down at Dollars 52 3/8 . The stock was weighed down by ratings downgrades from two securities firms, Sanford Bernstein and CJ Lawrence. Vehicle shares were lifted by news of strong car and truck sales for the first 10 days of March: General Motors firmed Dollars 1/2 to Dollars 38 7/8 , Ford Dollars 5/8 to Dollars 48 7/8 and Chrysler Dollars 1 to Dollars 39 3/8 .

Brokerages were higher because of the heavy demand for their services from individual investors, which is boosting commission revenues and asset management profits. Merrill Lynch rose Dollars 1 3/4 to Dollars 73 5/8 , Charles Schwab Dollars 5/8 to Dollars 36 1/8 and PaineWebber Dollars 3/8 to Dollars 26 1/8 .

Storage Technology, which rose sharply on Friday, added Dollars 5/8 at Dollars 27 1/8 in volume of 2.2m shares on hopes that testing of the company's Iceberg data storage system is progressing well.

Canada

THE TORONTO market finished higher following moderate-to-heavy trading, boosted by a modest late-afternoon rally after showing little movement earlier in the session.

The TSE 300 index gained 14 points at 3,562.0 and rises outnumbered falls by 324 to 289. Volume amounted to 43.6m shares valued at CDollars 358m.

Eleven of 14 stock groups closed higher, led by the gold shares sector, up 1.8 per cent as the bullion price rose in New York by USDollars 1.20 to USDollars 329.35 an ounce.

US United States of America CA Canada P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 45 579
World Stock Markets: Political backcloth to global equity shifts Publication 930316FT Processed by FT 930316 By JOHN PITT

Politics provided the set for last week's drama on some of the world's equity markets.

While Hong Kong fell sharply after Mr Chris Patten, the colony's governor, enraged the Chinese on Friday by saying that he was to press ahead with democratic reform proposals, Australia rose, anticipating a change of government. Japan provided support for the 2 per cent gain in the FT-Actuaries world index, as the Nikkei average closed the week at a six-month high.

The slide in Hong Kong continued yesterday, with the Hang Seng index having lost some 8 per cent over the two days. However, many analysts believe that the worst is now over and anticipate short term support at the 5,800 level. Most of the selling has come from domestic investors, with foreign institutions remaining on the sidelines, they comment; and the excellent results from HSBC have refocused attention on the underlying strength of corporate earnings.

Regarding Mr Patten's efforts to seize the political initiative with his proposals to extend democracy, Mr David Bates of Asia Equity comments that there are doubts whether they will even win the support of the Legislative Council. As yet a date has not been set for debate but, says Mr Bates, there are indications that the LegCo is evenly divided.

Australia rallied as investors anticipated defeat for Mr Paul Keating and his Labor government; but Labor, having clinched victory, the equity market yesterday lost 2 per cent.

Mr Peter Wade of brokers JB Were in London commented that expectations that the Liberal/National party would seek further rationalisation of the banking sector and privatise other public sector companies had driven the market higher in the pre-election weeks. Nevertheless, with the likelihood of cuts in interest rates and corporate tax the downside in the market would probably be limited.

XA World P6211 Security Brokers and Dealers MKTS Market data CMMT Comment & Analysis P6211 The Financial Times London Page 45 336
World Stock Markets (Europe): Agreement on 'solidarity pact' lifts senior bourses Publication 930316FT Processed by FT 930316 By Our Markets Staff

AFTER the slump last Friday afternoon on storm signals in Russia and the New York equity market, bourses mostly recovered yesterday, writes Our Markets Staff.

Sentiment, especially in Germany, France and Switzerland, was lifted by the weekend conclusion of the German 'solidarity pact', involving agreed political, corporate and trade union initiatives in the financing of German unification.

FRANKFURT looked undecided, the DAX index ending 4.57 lower at 1,702.57. But this obscured the recovery from the tumble share prices had taken on Friday afternoon.

Mr Hans Peter Wodniok, of James Capel in Frankfurt, said that on the Ibis screen system, share prices yesterday afternoon were running 1 1/2 per cent of Friday evening's with Deutsche Bank DM11 higher at DM723 against an official close of DM720.80, down 20 pfg.

Turnover fell from DM6.8bn to DM6.2bn. Exceptions to the solidarity celebration included Volkswagen and Hoechst, which closed DM7.30 lower at DM285.50, and DM4.80 down at DM249 respectively.

Over the weekend, VW lost a senior management prospect as General Motors's J. Ignacio Lopez de Arriortua announced he would stay with GM. VW subsided further to DM283.60 in the aftermarket on industry indications that the carmaker's dividend would be cut from DM11 to DM2 for 1992, rather than the expected DM4 or DM5.

Hoechst hit more trouble when its Frankfurt plant suffered an explosion early yesterday, the chemical group's fourth accident in Germany in the last month.

MILAN reacted fairly calmly to news that Iri, the state holding group, was to take a L340bn loan from its telecommunications subsidiary Stet in exchange for granting it the dividend rights for three years in another of its subsidiaries, Banco Commerciale. The Comit index, on the last day of the March account, lost 5.82 to 508.42.

In spite of the slight losses, Stet down L13 at L2,174 and Commerciale off L170 at L4,830, some analysts commented that the news placed doubts on the success of the government's privatisation programme: with Stet holding some 52 per cent of Commerciale's equity it was now problematic how the latter's planned privatisation could proceed.

Olivetti was the day's other story, although the shares were suspended at L2,202 pending its surprise announcement of a L900bn rights issue. Mr John Stewart of Pastorino commented that the group, in effect, was seeking the new funds to rebuild its net assets after sustaining losses of over L1,100bn during the last two years.

PARIS strengthened on hopes of easier European interest rates and the CAC-40 index closed 20.80 firmer at 1,986.03. However, turnover was relatively thin at FFr2.3bn.

Interest rate-sensitive stocks were the day's main gainers in the absence of fresh corporate news. Euro Disney advanced FFr2.40 to FFr89.35, also helped by the warm weather which has recently boosted attendance levels. Paribas rose FFr6.20 to FFr422.20 and Suez was up FFr6.20 at FFr320.90.

AMSTERDAM recovered from Friday's losses with a gain in the CBS Tendency index of 1.3 to 105.5. Wolters Kluwer, the publishing group, which reports 1992 earnings today, stood 80 cents higher at Fl 89.80. Analysts expect the group to see an improvement in last year's results of between 15 and 20 per cent.

Fokker put on 20 cents to Fl 11.20 and announced that it was delaying publication of its 1992 earnings, which had been due on Thursday, until April 2 pending confirmation that the takeover by Deutsche Aerospace was to proceed.

ZURICH took its recovery mainly in chemicals and Nestle as the SMI index rose 28.1 to 2,157.0. Roche gained SFr80 to SFr4,090 on anticipation that the company will simplify its share structure and will post good 1992 results, and Nestle rose SFr30 to SFr1,160.

Banks were firmer on interest rate hopes, although CS Holding stood out with a rise of SFr40 to SFr2,270. Insurers were weak on fears that storms in the US would lead to high claims, Swiss Re losing SFr60 to SFr3,120 and Winterthur SFr40 to SFr3,320.

STOCKHOLM remained subdued as investors awaited tomorrow's vote of confidence in the government. The Affarsvarlden general index fell 11.4 to 1,001.1 in turnover of SKr533m, down from Friday's SKr635m. Procordia, the food and pharmaceuticals group, went against the trend, rising SKr2 to SKr190, still helped by last week's publication of good 1992 earnings.

HELSINKI was pulled lower by financial difficulties facing construction company Polar and the Hex index fell 28.2 to 963.1. Repola, which has a 12.9 per cent stake in Polar, lost FM4.30 to FM56.70. OSLO, however, strengthened with a gain in the All Share index of 8.02 to 442.61, for a rise of some 10 per cent since March 4.

---------------------------------------------------------------------- FT-SE ACTUARIES SHARE INDICES ---------------------------------------------------------------------- March 15 THE EUROPEAN SERIES ---------------------------------------------------------------------- Hourly changes Open 10.30 11.00 12.00 ---------------------------------------------------------------------- FT-SE Eurotrack 100 1155.56 1156.80 1156.44 1154.42 FT-SE Eurotrack 100 1152.83 1152.36 1153.70 1153.62 ---------------------------------------------------------------------- Hourly changes 13.00 14.00 15.00 Close ---------------------------------------------------------------------- FT-SE Eurotrack 200 1221.97 1222.49 1222.00 1220.84 FT-SE Eurotrack 200 1219.72 1219.61 1219.70 1219.52 ---------------------------------------------------------------------- Mar 12 Mar 11 Mar 10 Mar 9 Mar 8 ---------------------------------------------------------------------- FT-SE Eurotrack 100 1145.86 1163.60 1167.52 1164.26 1165.04 FT-SE Eurotrack 200 1212.44 1232.53 1231.98 1230.72 1229.32 ---------------------------------------------------------------------- Base value 1000 (26/10/90) High/day: 100 - 1156.80; 200 - 1223.34 Low/day: 100 - 1151.96 200 - 1217.67. ----------------------------------------------------------------------

DE Germany, EC IT Italy, EC FR France, EC NL Netherlands, EC CH Switzerland, West Europe SE Sweden, West Europe FI Finland, West Europe P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 45 922
World Stock Markets (Asia Pacific): Pacific Basin in ferment as Nikkei rises again Publication 930316FT Processed by FT 930316 By EMIKO TERAZONO TOKYO

SHARE prices fluctuated on technical activity, but the Nikkei average finally registered its seventh consecutive gain, writes Emiko Terazono in Tokyo.

The Nikkei ended 48.66 higher at 18,086.18. It fell to the day's low of 17,957.16 in the morning and rose to the session's high of 18,169.16 in the afternoon, before fluctuating on arbitrage trading.

Volume fell to 350m shares from Friday's 771m. Advances led declines by 680 to 347, with 136 issues unchanged. The Topix index of all first section stocks put on 2.66 at 1,353.60 and, in London, the ISE/Nikkei 50 index firmed 1.15 to 1,081.14.

Activity was led by individual speculators and dealers, while most institutional investors remained on the sidelines. Traders said some US pension funds were looking to increase their weightings in Japanese shares, but that European investors, who have foreign exchange profits on their holdings, were reducing their allocations.

Mr Jason James, a strategist at James Capel, said share prices could ease during the second quarter of this year, and that there was little need for hasty buy decisions. 'The market will correct after the fiscal year-end, with 16,000 at the lowest end of the range,' he added.

Short term trading centred around companies related to Nippon Telegraph and Telephone, and the Japan Rail Group. NTT took a breather, retreating Y7,000 to Y803,000 on profit-taking. Iwatsu Electric, which has close business ties with NTT, was the day's most active issue, forging ahead Y43 to Y538.

Nippon Express appreciated Y6 to Y825. The company is considered a JR-related stock, due to its land holdings around JR railway stations. Nabco, a Kobe Steel affiliate which makes automobile and railway brakes, climbed Y80 to Y570 on a report that it had developed a new air-brake system with JR researchers.

High-technology shares were lower on profit-taking by individual investors. Hitachi dipped Y4 to Y753, Toshiba Y12 to Y606 and NEC Y12 to Y767.

Kyowa Hakko Kogyo surged by its daily limit of Y101 to Y1,100 on reports of its development of an anti-cancer agent.

In Osaka, the OSE average was up 156.35 to 19,076.15 in volume of 45m shares. The index rose above the 19,000 mark for the first time since December 25 last year.

Roundup

EVENTS OF the weekend, and last week, had a powerful impact in the region.

HONG KONG dropped a further 5.1 per cent on China's angry reaction to Governor Chris Patten's decision to proceed with democratic reform. The Hang Seng index finished at 5,854.61, down 315.79 but up from a day's low of 5,792.18. However, London over-the-counter trading was more positive, indicating an improvement in the index of about 100 points.

Turnover stayed high, totalling HKDollars 5.23bn, although down from Friday's HKDollars 5.32bn. HSBC finished HKDollars 1.50 down at HKDollars 64.50. After the market closed, the group reported a 68 per cent jump in 1992 net profits, but shares in its Hang Seng Bank unit lost HKDollars 3.50 to HKDollars 62.50. HSBC closed later in London HKDollars 1.80 better at HKDollars 66.30.

AUSTRALIA subsided on Labor's election win and falls on overseas markets, the All Ordinaries index ending 35.1 off at 1,626.4 after a day's low of 1,614.0. Labor's promise of a reduction in company tax and indications that it will cut interest rates helped to mollify investors.

Bank shares were sold as hopes of mergers were dashed by the coalition's election loss. ANZ fell 32 cents to ADollars 3.26, Westpac 11 cents to ADollars 3.09 and NAB 8 cents to ADollars 8.47.

Among retailers, Coles dropped 15 cents to ADollars 4.55 and Foodland receded 15 cents to ADollars 6.75. Investors had hoped that a coalition government would benefit retailers by scrapping payroll tax and exempting food from its goods and services tax.

NEW ZEALAND shed 1.4 per cent on Labor's surprise win in Australia, the NZSE-40 index closing at 1,567.04, down 21.58.

SINGAPORE's Straits Times Industrial index, hurt by Hong Kong and poorer than expected results posted by Singapore's key DBS Bank, slipped 22.07 to 1,630.81. MANILA lost 1.5 per cent in reaction to a PLDT slide on Wall Street, the composite index ending 23.03 lower at 1,471.65. PLDT fell Dollars 1 1/4 to Dollars 35 3/8 in New York on Friday.

SEOUL rose for the third straight session, the composite index closing 10.89 higher at 645.73 on renewed hopes that the government may set aside an announcement which would phase out widespread clandestine trading. TAIWAN put on 2.1 per cent in thin trading, the weighted index ending 93.16 better at 4,507.00.

BOMBAY resumed trading for one hour after last Friday's bomb blast caused extensive damage to the stock exchange building. The BSE index finished at 2,416.28, a rise of 86.19 from Thursday's close.

JP Japan, Asia HK Hong Kong, Asia AU Australia NZ New Zealand SG Singapore, Asia IN India, Asia SK Slovakia, East Europe P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 45 841
World Stock Markets: South Africa Publication 930316FT Processed by FT 930316

JOHANNESBURG saw industrials recover from early lows to end with a 13 point gain at 4,482 as the overall index added 9 at 3,459. The golds index finished at a high for the year, up 15 at 1,053. Anglos put on R1 at R98.75.

ZA South Africa, Africa P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 45 73
Foreign Exchanges: Dollar struggles to advance Publication 930316FT Processed by FT 930316 By EMMA TUCKER

AGREEMENT ON Germany's Solidarity Pact yesterday strengthened expectations on the foreign exchange markets for a cut in the Bundesbank's official lending rates, writes Emma Tucker.

Hopes that the German central bank will announce a 1/2 percentage-point reduction in the discount rate on Thursday were buoyed by reports that Germany's political parties, federal states, employers and trade unions had agreed on a public financing package to underpin the east German economy.

Initially the US dollar was the chief beneficiary of the news, although by the end of European trading it had failed to break through Friday's close of DM1.6655.

Analysts are somewhat bemused as to why the dollar remains trapped in such a narrow trading range after good non-farm payroll figures of a week ago, political unrest in the former Soviet Union and strong prospects for a German rate cut should have combined to give the currency a strong upward boost.

Mr Christian Dunis of Chemical Bank in London said: 'I think the markets are getting a bit impatient with the inability of the dollar to move higher, but at the same time no-one has the guts to push it too far down because the expectation is still that it will rally.'

Mr Dunis pointed out that the difference between US and German lending rates remains significant as the market waits to see what the Bundesbank will do later this week. The dollar made no gains on the day, ending easier at DM1.6615, and in New York at DM1.6623.

The pound did not respond to the growing prospects of German monetary easing, continuing to trade in a very narrow range ahead of today's Budget. Although a cut in German rates would make it easier for the UK authorities to reduce interest rates, the Bank of England and the Treasury have been discouraging expectations of further monetary easing.

Official resolve will have been strengthened by yesterday's news that manufacturing output rose a better than expected 0.8 per cent in January. The figure added to evidence that a modest economic recovery is taking place in the UK. The pound lost 1/2 pfennig to close at DM2.3825. Against the dollar it ended barely changed at Dollars 1.4345.

Tensions within the European exchange rate mechanism were held at bay. The escudo, which came under pressure at the end of last week following reported differences between the central bank and the government, regained stability. In later trade it eased to just above Es93 per D-Mark. The peseta was also slightly weaker, closing at Pta71.41. The French franc was virtually unchanged at FFr3.401.

Potential for strains within the system remain, however, and dealers yesterday warned that failure by the Bundesbank to act on Thursday could put the mechanism's weaker currencies under pressure.

DE Germany, EC GB United Kingdom, EC FR France, EC QR European Economic Community (EC) P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 39 499
Money Markets: Short sterling falls Publication 930316FT Processed by FT 930316

THE MARCH short sterling futures contract dipped around five basis points yesterday, as dealers all but abandoned hopes for a Budget interest rate cut today.

Weekend newspaper reports that tax increases in the Budget were likely to be modest, and stronger than expected manufacturing output figures yesterday, reduced already waning expectations.

Some dealers thought that a fiscally tight Budget would be accompanied by another full percentage point cut in interest rates. However, reports suggest that the chancellor is set to increase the overall tax burden by as little as Pounds 2bn.

A 0.8 per cent rise in manufacturing output in January, compared with the previous month, added to the feeling that pressure on the government to ease monetary policy was lifting. The month-on-month increase compared with expectations for a 0.1 per cent rise and added to evidence that the economy is at a turning point.

The March contract, which opened at 94.12, moved as low as 94.06 during the day and closed at around 94.08.

Contracts further out also fell. The June contract dropped 7 basis points from the opening to end at 94.57 in late trading.

On the money markets, short dated cash rates were squeezed higher by a large forecast liquidity shortage which the Bank of England had difficulty relieving.

By midday the Bank had removed only Pounds 353m of a Pounds 1.4bn shortage and overnight rates crept as high as 13 per cent. The Bank made better progress in the afternoon, purchasing bills totalling Pounds 1.03bn and providing late assistance of Pounds 20m.

Overnight rates drifted to just below 8 per cent, while the three-month interbank rate finished unchanged at around 5 15/16 per cent.

In continental European futures trading, dealers reported that agreement on the Solidarity Pact in Germany had improved the underlying tone of the market, even if some doubts about a Bundes-bank easing on Thursday still existed.

'There are still sufficient underlying tensions in the European exchange rate mech-anism to prompt a sell-off in the Continental markets if the Bundesbank decides not to do anything,' warned one. The market has priced in a half-point cut in the discount rate. A full one point cut would prompt a significant rally.

GB United Kingdom, EC DE Germany, EC QR European Economic Community (EC) P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 39 402
Commodities and Agriculture: French fish and potato protests stepped up Publication 930316FT Processed by FT 930316 By ALICE RAWSTHORN PARIS

FRENCH FISHERMEN and potato farmers yesterday stepped up pressure on France's beleaguered socialist government, now only ten days away from parliamentary elections, with fresh outbreaks of unrest throughout the country.

A 'commando raid' of Etaples fishermen caused between FFr4m and FFr5m (Pounds 490,000-Pounds 600,000) of damage in a dawn raid on a fish warehouse at Boulogne-sur-Mer. They set fire to cargoes of imported fish outside the warehouse, then ransacked trailers of fish from Denmark and Ireland.

The mood of France's fishing ports has become increasingly heated in recent weeks as fishermen have escalated their protests against imports of cheap fish. Fishermen's leaders have vowed to continue the dispute until Thursday's meeting of European Community fishing ministers in Brussels.

However, one group of Breton fishermen today plans to stage a 'humanitarian and pacifist' protest by delivering six tonnes of fish to a food bank outside Paris to be distributed to the needy through the Salvation Army and other voluntary organisations.

Meanwhile potato farmers continued their battle against EC agricultural reform by staging a tractor demonstration at Quimper yesterday morning during which they blocked the streets with 400 tonnes of potatoes. This followed similar protests in other towns last week.

The government also faces problems at the docks. Some of the largest French trading ports yesterday came to a standstill as dock workers responded to calls for a 24-hour national strike in protest at modernisation plans.

FR France, EC P091 Commercial Fishing P0134 Irish Potatoes P9641 Regulation of Agricultural Marketing GOVT Legal issues P091 P0134 P9641 The Financial Times London Page 38 279
Commodities and Agriculture: Indonesian cocoa thrives as prices languish - One big producer is still increasing its output Publication 930316FT Processed by FT 930316 By WILLIAM KEELING

THE WORLD cocoa industry is in a state of crisis, with prices at record lows in real terms. But consumers and producers continue to bicker about a new International Cocoa Organisation (ICCO) withholding scheme to support the market.

Bucking the trend, however, is Indonesia, which remains remarkably bullish about cocoa's prospects. While output from major producers such as Brazil and Malaysia is in decline, the archipelago's output is rising inexorably.

In 1980-81, the country produced just 16,000 tonnes of speciality 'fine' cocoa, which by 1983-84 had picked up to 32,000 tonnes and by 1987-88 to 65,000 tonnes as farmers began to plant 'bulk' cocoa trees.

Production doubled again by 1990-91 and the current crop year, ending September 30, is forecast at 220,000 tonnes (of which 15,000 tonnes will be fine cocoa) making Indonesia the world's fourth largest producer - behind the Ivory Coast, Ghana and Brazil. Nor has Indonesia's cocoa-boom begun to subside. Traders confidently expect production to exceed 400,000 tonnes a year by the end of the decade, taking Indonesia into second place.

Mr Ibrahim Hasan, chief executive of the Indonesian Cocoa Association (Inca) says the roots of the boom go back to the 1970s when high prices led to interest among smallholder farmers.

Many of the plantation workers in Malaysia's cocoa-producing state of Sabah were Indonesians who smuggled seedlings back when returning home. In addition, the government and private agricultural companies set up seedling nurseries.

This led to a dramatic change in the country's production base. In the 1970s, cocoa production was split between state plantations (90 per cent) and private plantations (10 per cent). State plantations now account for only 25 per cent of the crop, while private plantations provide 15 per cent and smallholder farmers 60 per cent.

High productivity has allowed cocoa to be remunerative for farmers, despite the collapse of international prices. Mr Hasan estimates the yield in Sulawesi, the centre for smallholder production, at about 1.5 tonnes a hectare, five times the level of some West African producing countries. He estimates the yield in north Sumatra at slightly below 1 tonne a hectare.

'Indonesians are a force in cocoa. They're not on the peripheries, which even two years ago they were,' explains one London cocoa trader. Other producers and the ICCO, however, have been slow to pick up on Indonesia's sudden importance.

As Mr Hasan observes: 'If you look at all the ICCO documents, Indonesia is still classified as a 100 per cent fine cocoa producer'. One reason for the ICCO's failure to update records may be that Indonesia has yet to join the organisation, a fact that has significant implications for any future ICCO price support scheme.

'Indonesia is the lowest cost producer and if it's not willing to participate in any withholding scheme, it is that much more difficult to work,' one cocoa broker points out.

Brokers estimate a withholding scheme must encompass 80-85 per cent of world production to have any chance of supporting prices. Indonesia already accounts for 10 per cent of world production and is likely to have a 15 per cent share by the end of the decade.

Indonesian producers, however, are reluctant to join the ICCO, for as one official explains: 'We are very worried that if we become a member our production programme may be constrained by outside factors'.

Indonesian producers are confident that cocoa prices will pick up with or without an ICCO scheme in place as the industry enters a period in which world demand exceeds annual output. They are, therefore, more concerned with structuring the domestic industry to take advantage of higher demand than with the need for international co-operation.

The main thrust of the next five years will be to improve quality, say Inca officials. Indonesian beans have a relatively low fat content and farmers tend to ferment their crop inadequately. As a result, Indonesian cocoa sells at a discount to the world market price.

'We have to be really concerned about quality if we are to fulfil the demand of industry,' warns Mr Hakim Warsono, Inca's deputy chairman. The task may not be easy - that Inca has yet to get its own offices is a reminder Indonesia's cocoa industry is still in its infancy.

Inca officials, however, are brimming with confidence. In instances when farmers have mimicked West African fermentation and sun-drying techniques Indonesian beans 'get almost a Ghana-style taste profile' and can compete among the world's best, says Mr Hasan.

XA World P0179 Fruits and Tree Nuts, NEC MKTS Production COSTS Commodity prices P0179 The Financial Times London Page 38 788
Commodities and Agriculture: Chicago wheat rallies Publication 930316FT Processed by FT 930316 By LAURIE MORSE CHICAGO

CHICAGO WHEAT prices rallied yesterday in response to Friday evening's announcement that the US Department of Agriculture would ship 520,000 tonnes of wheat and 87,000 tonnes of rice to Russia by July under a food aid programme.

The USDA will have to buy the grain from the open market as government stockpiles have been depleted.

Commercial grain shipments have been at a standstill since November, when Russia began to miss interest payments on its US-backed grain loans.

At midsession yesterday old-crop wheat futures prices were up 6 cents per bushel, with wheat for May delivery trading at 329. Prices for delivery later in the summer, during harvest, also rallied, but the advance was smaller.

Analysts said winter wheat plantings in Kansas and the Western plains states were in excellent condition, creating the potential for record yields.

The US wheat donations to Russia had been expected, according to Mr Daniel Basse, a grains analyst for AgResource, However, the quantity was larger than projections. Mr Basse said that while Mr Boris Yeltsin, Russia's president, encountered political setbacks over the weekend, grain traders viewed his dispute with parliamentary hardliners as part of the normal legislative process. 'Mr Yeltsin is still president,' Mr Basse said, 'they didn't ask him to resign'.

US United States of America P0111 Wheat MKTS Market data COSTS Product prices P0111 The Financial Times London Page 38 242
Commodities and Agriculture: Cocoa pact discussions postponed Publication 930316FT Processed by FT 930316 By REUTER

Delegates to the International Cocoa Organisation, which began its council meeting in London yesterday, showed little inclination to return to discussing the cocoa pact only ten days after their Geneva meeting. They decided to leave consultations until later in the week, reports Reuter.

GB United Kingdom, EC P0179 Fruits and Tree Nuts, NEC P9721 International Affairs CMMT Comment & Analysis P0179 P9721 The Financial Times London Page 38 82
World Commodities Prices: Tea Publication 930316FT Processed by FT 930316

The Tea Broker's Association reports, landed fair demand but at a generally easier rate. Coloury medium East African fannings. Grades were about steady but the remainder lost 4 to 6p, sometimes more, with dusts rather weak throughout. Offshore the market followed a similar pattern with selected medium Kenyas firm, others 2 to 4p down. The highest price realised this week was 184p for a Rwanda pd. Quotations: quality 160p/kg, nom good medium 142p/kg, medium 135p/kg, low medium 105p/kg.

XA World P0831 Forest Products MKTS Market data P0831 The Financial Times London Page 38 102
Commodities and Agriculture: Nestle seeks direct milk supply from UK farmers Publication 930316FT Processed by FT 930316 By DAVID BLACKWELL

NESTLE, THE UK subsidiary of the Swiss food group, yesterday offered contracts to 8,000 dairy farmers near its factories for direct supplies of milk when the Milk Marketing Board statutory monopoly ends some time next year.

The move follows the announcement last month by Northern Foods of plans to set up the Northern Milk Partnership, a co-operative venture which hopes to recruit more than 5,000 farmers to supply the company with up to 2bn litres of milk a year worth Pounds 500m.

Nestle, which buys nearly 5 per cent of UK milk, aims to attract enough farmers to supply 700m litres a year, worth about Pounds 150m, to factories in Ashbourne, Derbyshire; Girvan, Ayrshire; Dalston, Cumbria; and Omagh, Co Tyrone.

The contracts would not require regular renewal, but would guarantee producers a market for three years ahead, while allowing them to sell elsewhere without penalty by giving three months notice.

The Milk Marketing Board, which is reforming itself into a co-operative to be known as Milk Marque, yesterday urged dairy farmers to sign nothing, but to keep their options open. Milk Marque hopes to supply 80 per cent of the UK's Pounds 3bn annual milk market, a share some observers believe it will need to cover costs.

Nestle GB United Kingdom, EC P0241 Dairy Farms MKTS Contracts P0241 The Financial Times London Page 38 244
Commodities and Agriculture: Sugar storms to three-year highs Publication 930316FT Processed by FT 930316 By DAVID BLACKWELL

WORLD SUGAR prices, already moving ahead on successive reductions in the Thai crop estimate, surged to the highest level for nearly three years yesterday on news that the storms sweeping up the eastern seaboard of the US had hit Cuba.

In New York the May raw sugar contract was up 0.95 at 11.50 cents a lb in late trading, having touched a peak of 11.83 cents earlier. In London the August white sugar contract closed at Dollars 297.50 a tonne, up Dollars 13 on the day.

However, analysts in London were cautious over the damage to Cuba's crop, which was already expected to be well down on last year's 7m tonnes. Some are talking of 5m tonnes and under, but there is no hard evidence on which to base a judgment.

Talk of damage to sugar mills and dock facilities in Cuba added further fuel to the flames. 'The Cubans have a vested interest in allowing people to think it's terrible, ' said Mr Chris Pack, analyst at Czarnikow. 'But it can't have done any good to have a tremendous storm at the start of the season.'

Last week the Thai government revised its production estimate down to 3.51m tonnes - the lowest level for five years. At the beginning of the season production was expected to reach a record 5m tonnes, but drought has damaged the crop.

XA World P0722 Crop Harvesting COSTS Commodity prices P0722 The Financial Times London Page 38 259
World Commodities Prices: Market Report Publication 930316FT Processed by FT 930316 By REUTER

NICKEL prices followed through from Friday's downturn at the London Metal Exchange yesterday. The three months delivery price added Dollars 65 to the Dollars 17 pre-weekend fall to reach Dollars 5,967.50 a tonne following talk early in the day of Chinese selling. The COPPER market was in retreat following last week's rally and the three months price closed Pounds 11.75 lower at Pounds 1,534.50 a tonne. Dealers said the New York-inspired rise ran out of steam as the market's high stocks and poor demand growth rates outside North America reasserted themselves. Japanese selling started the downturn, they added, and as buyers backed off the market became thin. The GOLD price moved slightly higher in late afternoon as the market continued to watch Russia for signs of a developing political crisis. At the London bullion market close the price was 90 cents up from Friday at Dollars 328.65 a troy ounce. PLATINUM was also assisted by the Russian situation and the London price was fixed in the afternoon at Dollars 325.25 an ounce, up Dollars 1.

Compiled from Reuters

GB United Kingdom, EC P3339 Primary Nonferrous Metals, NEC P1041 Gold Ores COSTS Commodity prices P3339 P1041 The Financial Times London Page 38 213
Survey of Contract Electronics Manufacture (7): A world built on silicon - Paul Taylor keeps abreast of the bewildering changes in technology Publication 930316FT Processed by FT 930316 By PAUL TAYLOR

OVER the past decade the electronics revolution has reached almost all industries enabling the development of a wide range of new consumer and business products and services.

The personal computer, fax machines, satellite television, mobile telephony, medical scanners, compact-disc players, anti-lock brakes and engine management systems for cars are among the many products which have been made possible by recent advances in semiconductor technology.

Even more sophisticated applications will soon emerge, including personal communicators, video-telephones, crash avoidance systems and car navigation aids. The pace of change is accelerating and silicon technology will continue to be the engine of change and innovation.

Higher-speed devices will be integrated and packed closer, in smaller, more complex and reliable packages which cost less. But to turn these basic building blocks into useful products requires very expensive specialist machinery, expert knowledge and the application of the latest computerised techniques.

Many large companies whose core business is not primarily electronics will lack state-of-the-art equipment and expertise to take advantage of these changes.

Others will focus on design and marketing rather than manufacture. In either case the opportunities for the specialist contract electronics manufacturer are substantial.

Perhaps more than any other single factor the growth of contract electronics manufacturing has been fuelled by advances in technology - and by the switch to SMT (surface mount technology) in particular.

From the late 1950s, when transistors and printed circuit boards (PCBs) replaced valves, until the mid-1980s almost all PCBs were assembled using conventional PIH/PTH (pin-in-hole or plated-through-hole) technology.

Individual components are inserted either by hand or automatically into plated holes in the circuit board and molten solder is then forced up through the hole using a 'wave' solder machine. When the solder dries it attaches each component to the circuitry on the board.

However, since the mid 1980s, SMT has become increasingly popular. In SMT solder paste - a putty-like mixture of minute solder balls mixed with flux - is screen printed on to circuit terminals or pads on the circuit board. The ICs (integrated circuits) and other miniature components are placed, or 'onsetted', on to the solder paste using highly accurate automatic placement equipment. The solder paste is then melted or 'reflowed' which creates the joint between the component and the circuit board.

SMT has some significant advantages over the traditional method. These include smaller size, increased automation, lower production costs, better performance and higher reliability. However there are also some disadvantages.

In particular, SMT 'pick and place' equipment must be very accurate, requires skilled programming and is costly. A typical automated high volume SMT line costs around Pounds 1m, a significant barrier to entry in the contract manufacturing business and an incentive for OEMs to subcontract their electronics manufacturing.

Mr Derek Duffett, director of the Association of Contract electronics Manufacturers (ACeM), recently noted that the advent of SMT had raised the investment level needed to enter the business and was one of the major reasons for the trend towards contract electronics manufacturing.

According to figures from Motorola, the US electronics group, two years ago 70 per cent of the world consumption of integrated circuits was for PTH components. About 20 per cent was of SMT components with the remaining 10 per cent shared by other emerging technologies.

Reflecting the fact that contract electronics manufacturers tend to be at the leading edge of technology, many in the UK already report that SMT output has overtaken traditional PTH, although a lot of boards are hybrids - combining both technologies.

The switch to SMT has often been overstated, but most industry participants believe that by 1995 about half of all components sold will be of the SMT variety, and that by the end of the decade SMT will have emerged as the clearly dominant technology.

Nevertheless by then other new technologies which have been in the development stage for many years will have also reached the market. They are needed because the performance and density requirements of electronics systems will begin to exceed the capabilities of discrete chip packaging, like SMT. To overcome this will require new 'interconnection techniques'.

The latest new technique, which is already being used in the electronics industry in Japan, the US and occasionally in the UK, is called TAB (tape automated bonding). In this method a lead frame is attached to 'bumps' on the edge of the silicon chip in a process known as 'inner lead bonding'.

The chip and its leads are then sealed or encapsulated in a glue-like substance called 'glob-top' and mounted on a reel, similar to a 35mm camera film. These tiny devices can also be placed on to little trays called 'slide carriers'. The components are then attached to a circuit board using thermo-sonic means or conventional reflow soldering.

Another packaging method called COB (chip on board) is very similar to TAB but no lead frame is used. Instead the tiny silicon chip is placed directly on to the circuit board or 'substrate' and then attached using a special 'die attach' glue. Individual wires are then bonded to terminals on the chip and connected to the pads on the substrate. The whole assembly is then encapsulated in glob-top.

Both TAB and COB provide greatly improved electrical performance than earlier technologies and allow increased component packing densities on the board - leading either to smaller boards or greater functionality. By the end of the decade they are expected to account for up to one fifth of all component sales.

The latest packaging technology is called MCM (multi chip module). An MCM is made up of several bare silicon chips mounted on the substrate. Then, using COB techniques, the chips or 'die' are connected to circuitry much smaller and more carefully routed than those on PCBs. These MCMs provide much higher performance than the same chips mounted conventionally on a circuit board.

In addition to these changing methods of assembly, the printed circuit board itself is also changing. Already TFT (thick-film technology), flexible circuits and three-dimensional substrates have emerged as means to further increase component density.

Using these new technologies requires even more complex factory infrastructure and sophisticated handling techniques. Optical recognition and correction systems on the machines which place the components become more necessary as the space between leads (the pitch) becomes narrower.

At the same time this places even more stringent demands on manufacturers' processes and quality improvement programmes such as zero defect and statistical process control (SPC), both advanced quality manufacturing techniques increasingly required by customers. This in turn means most manufacturers invest very heavily in sophisticated automatic testing equipment.

In order to achieve the greatest efficiency and flexibility with their equipment many contract manufacturers have installed electronic data exchange (EDI) and computer management systems which often tie into those of their customers and suppliers.

Meanwhile, in order to keep up with the advances in silicon technology manufacturers must update and replace their equipment frequently. This means there is often little time to recover capital costs and considerable pressure to keep the machinery working 24 hours a day. But although speed is an important factor in choosing equipment, manufacturers also stress the need for reliability, capability and flexibility.

Finally, although electronics generally has a good environmental record, electronics manufacturers, including those in the contract industry, are having to focus on environmental issues. For example the use of chloro-fluorocarbons (CFCs) in the cleaning stage of SMT board assembly is being phased out.

TERMINOLOGY ASIC: Application Specific Integrated Circuit COB: Chip on Board DIP: Dual in Line Package IC: Integrated Circuit MCM: Multi Chip Module PCB: Printed Circuit Board PIH/PTH: Pin-in-Hole/Plated-Through-Hole QFP: Quad Flat Pack SMT: Surface Mount Technology SOIC: Small Outline Integrated Circuit TAB: Tape Automated Bonding

XA World P36 Electronic and Other Electric Equipment TECH Technology CMMT Comment & Analysis P36 The Financial Times London Page 36 1328
Survey of Contract Electronics Manufacture (5): Tartan attractions - James Buxton takes a drive through Scotland's 'Silicon Glen' Publication 930316FT Processed by FT 930316 By JAMES BUXTON

A LITTLE plant on the shores of Loch Ness that employs just six people is probably the most northerly outpost of Scotland's contract electronics manufacturing industry. Allgood Technology, at Foyers near Inverness, uses surface mount technology to produce high value populated printed circuit boards (PCBs) in low volumes.

It was founded three years ago by Mr Peter Allgood, a digital engineer who took voluntary redundancy from BT at the age of 30 and moved to the Highlands from Birmingham in search of a better quality of life. The company now has turnover of Pounds 120,000 and is producing boards for products such as professional audio equipment.

Allgood Technology is at one end of the spectrum of the Scottish electronics industry, which employs 45,000 people, and which in 1991 accounted for 13 per cent of Scotland's employment in manufacturing and 21 per cent of its manufactured output.

The Scottish electronics industry is dominated by multinationals. It has original equipment manufacturers such as International Business Machines, employing 2,200 people making personal computers at Greenock, and Motorola, which produces both semiconductors and mobile telephone equipment at plants in East Kilbride and Easter Inch.

But there is also a large components sector, in which multinationals play the major role. In contract electronic manufacturing (CEM), Scotland has several of the largest operators in the UK - offshoots of Avex, SCI and Philips - and a number of smaller specialist producers. At the less sophisticated end of the electronics industry there are substantial businesses employing many people in assembly and manufacturing.

It is a frequent source of complaint in Scotland that indigenous Scottish-based companies account for a very small part of the industry - only about three per cent in terms of employment - and, according to a 1991 survey by Dr Ivan Turok of Strathclyde university, provide only 12 per cent of material inputs by value. This ignores the fact that most electronics plants in Scotland see themselves as part of a global or EC-wide industry.

Avex, for example, at East Kilbride, works for eight of the world's largest electronics companies (though like most CEM companies it refuses to name them), supplying their plants in Scotland, the EC and the US. It employs about 1,000 people and can design components to order, as well as manufacturing populated PCBs and assemble them into such things as telephones, personal computers and complex medical equipment.

In Dunfermline, Philips Circuit Assembly, part of the Dutch multinational, has a large plant producing populated PCBs for OEMs. About 50 per cent of its output goes to OEM plants in Scotland and about 35 per cent is exported. Mr Cliff Hargess, sales and marketing manager, says it has an advantage over other CEM companies because its surface mount technology line can work to 'extra fine pitch,' with the space between components being as little as 15,000th of an inch. Philips employs 600 people.

The other major CEM company in Scotland is SCI which has a plant at Irvine which employs about 800 people, increased by taking on several hundred temporary workers at busy times. (SCI is dealt with in more detail in the article below.) Another multinational CEM company is Timex Electronics in Dundee, currently rebuilding its workforce after dismissing all its 300 production workers after they refused a new pay and conditions package.

But multinationals are not the only key players in the Scottish CEM sector. A significant player is Keltek, part of the UK quoted Graseby group, which is based at Kelso in the Borders. It has been operating for 20 years and occupies a specialised niche in the market.

'We offer a complete service from concept design to turnkey delivery for OEMs,' says Mr Bob Wardlaw, marketing director. Keltek does CEM work for companies such as BT, Post Office Counters, BOC, Smiths Industries and British Gas. It has annual sales of about Pounds 13m and employs 200 people.

Ms Carol Brannigan of Avex, who plays a leading role in the Association of Contract Electronics Manufacturers (ACeM), argues that Scotland's Silicon Glen, as it is called, has a strong infrastructure of suppliers and human skills. But she would like to see more component manufacturers come to widen the range of products available at short notice.

The picture of the Scottish electronics industry which emerges is one of close cooperation between OEMs and CEMs as well as component suppliers, many of which are only a handful of miles apart.

Avex works closely with Prestwick Holdings, a quoted Scottish manufacturer of raw PCBs. Another important indigenous Scottish company in this field is Exacta at Selkirk.

The trend is for OEMs to subcontract increasing quantities of their work in order to hold down their own overheads and let other companies bear the strain of ramping up and then perhaps running down their labour forces in response to demand. However, there are also signs that OEMs are beginning to use their facilities to do CEM work for others.

Digital, which makes PCs at Ayr, recently began assembling and testing microchips there for test houses and for other manufacturers. In addition it will be using its recently installed Pounds 1.7m surface mount technology line to assemble modules for other manufacturers. Its subcontract work to date has so far been worth about Pounds 1m.

At the less sophisticated end of production, Scottish-based companies do considerable business in assembling personal computers and other PC components. Mimtec, an electronics manufacturer owned by Murray International Holdings, which is 88 per cent owned by Mr David Murray, one of Scotland's leading entrepreneurs, has for several years been assembling PCs for Scottish-based OEMs such as IBM and Compaq.

Now, to meet the big increase in demand for IBM's PCs since it introduced a new range of products and slashed its prices, Mimtec is expected to build a large, 400,000 square foot plant at Gourock, close to IBM's Greenock facility, for PC assembly, with IBM likely to be involved in financing the Pounds 13m project.

In an unusual development the ranks of companies assembling PCs for IBM have been joined by the transport group LEP International, which has for some time handled much of Greenock's distribution and has now started operating a PC assembly line.

Another important player in the Scottish electronics industry is Fullarton Fabrications, a subsidiary of the UK's Laird Group, which employs about 1,400 people in a network of plants at Irvine. Fullarton does sheetmetal work (building boxes for PCs and other computers) and assembles keyboards and other components, some of which are exported to Ireland, Brazil and the US.

GB United Kingdom, EC P3672 Printed Circuit Boards P35 Industrial Machinery and Equipment P36 Electronic and Other Electric Equipment CMMT Comment & Analysis P3672 P35 P36 The Financial Times London Page 35 1149
Survey of Contract Electronics Manufacture (6): Creature from outer space - Profile of SCI of Huntsville, Alabama Publication 930316FT Processed by FT 930316 By PAUL TAYLOR

ONE of the fruits of the US National Aeronautics and Space Administration (Nasa) programme in the 1960s was that it spawned a new generation of innovative electronics companies.

One is SCI, founded in Alabama by Olin B King, a former Nasa engineer who began a three-man business manufacturing flight simulators for the moon shots in his basement in 1961.

King realised, however, that there was not much volume in 18 moon shots. So he diversified the company, initially called Space Craft Inc., into building a wide range of electronic systems under contract.

By 1969, when the Apollo launch vehicle left the Kennedy Space centre launch pad, it was carrying more than 400 SCI-built sub-systems providing vital instrumentation, communication and computer functions, including some in the lunar lander.

Eight years later, in August 1977, SCI built the plated-wire memories for the highly successful Voyager 2 spacecraft whose systems were still operating flawlessly more than a decade later.

When the original IBM PC made its appearance in 1981 it came with a SCI-manufactured motherboard. SCI also manufactured the Sinclair-designed Z88 computer.

By the mid 1980s SCI had become a Fortune 500 company in its own right. Today it is one of the biggest and oldest contract electronics manufacturers employing about 9,500 people in 19 manufacturing plants worldwide, and serving mainly multinational customers in North America, Western Europe and South East Asia where it has plants in Singapore and Thailand. Last year, the publicly-quoted group, which is still based at Huntsville, reported net income of Dollars 3.83m on revenues of Dollars 1.05bn despite the recession.

SCI's major worldwide IT customers in the year to June 30 last year included IBM, Seagate Technology and Conner Peripherals, which together accounted for almost half its total revenues. However, SCI is now a major diversified manufacturer for both the Government and commercial markets. It designs, manufactures, markets and services electronic products for OEM (original equipment manufacturers) customers in many industries including the aerospace, telecommunications, medical and banking sectors.

Its investment in electronics manufacturing technology is enormous. Overall the group, which began to install surface mount technology (SMT) production lines in 1985, had 75 fully automated SMT assembly lines in operation by mid 1992 together with 34 traditional lines using the older PTH (plated-through-hole) technology.

The group is divided into five geographic regions each with multiple plants manufacturing components, sub-assemblies and finished products for customers, but also increasingly offering a full 'turnkey' option including design, engineering, purchasing, manufacturing, distribution and support services if required.

The growth of SCI's international operations, including those in Europe, directly reflects the increasing globalisation of the world electronics industry. SCI followed its OEM customers overseas in order to maintain its global manufacturing relationships.

For example, SCI's European region comprises two manufacturing facilities, one in Irvine, Scotland, and the other in Fermoy, County Cork,in the Irish Republic.

Both sites reflect the establishment of significant offshore manufacturing bases by global OEMs over the past decade. In Scotland, SCI followed customers such as IBM, Sun Micro systems and Mitsubishi which needed to establish operations in Europe and were attracted to the region by a range of incentives.

Similarly the Fermoy plant, which employs 300 people, was set up in 1989 to provide electronic assemblies to Irish manufacturing operations of multinational OEMs such as Dell Computer which set up operations in Ireland as part of their global manufacturing strategies.

'They all want to manufacture close to the market because it gives flexibility,' says Mr Bruce Armstrong, SCI senior vice president in charge of the European division.

SCI's size and dispersed operations are a significant advantage when dealing with large multinational OEMs because it can offer customers considerable flexibility. If a customer's market or manufacturing need changes by location or demand, production can be switched to any SCI plant in a matter of days.

For example, a complete new SMT line can be flown in from Huntsville and, says Armstrong, 'be up and running within two weeks'. Because modern contract manufacturing is capital intensive the cost differential between different regions is not usually significant. 'These days the cost is a given, but it is flexibility that counts,' when it comes to holding on to customers, he says.

Nevertheless he accepts that the European plants have to be able to match the Far East on the basis of 'landed' or total contract price - including those costs which are often overlooked such as transport, inventory and other less tangible items such as delays and inflexibility.

It is a measure of the success at Irvine in controlling overheads and other costs while providing flexibility that it has recently succeeded in winning some contracts back from the Far East.

The 120,000 sq ft Scottish plant was set up in 1984, mainly to supply IBM's Greenock PC operations. Today it employs about 800 people although, like most other large contract electronics manufacturers, SCI also uses a pool of casual labour and the workforce is expanded by several hundred temporary workers at busy times.

Equipment at Irvine includes 12 Fuji SMT lines, each costing about Dollars 1m, four Universal PTH lines and three system configuration lines. Currently 80 per cent of output is SMT, 15 per cent PTH and 5 per cent even newer technologies such as COB (chip on board). But by the turn of the century Mr Armstrong expects the proportions to be 75 per cent, 10 per cent and 15 per cent respectively.

The product mix is also changing. Five years ago 90 per cent of production was for the IT industry. However the plant has broadened its customer base. IT now represents about 70 per cent, telecommunications 20 per cent and automotive 10 per cent with telecoms and the automotive sectors growing rapidly.

SCI has also expanded its range of services and increasingly sees itself as being in a beneficial partnership with its customers. Some customers still only require a consignment manufacturing service - they supply all the materials. However, Mr Armstrong says the 'more enlightened' OEMs have long since moved towards much broader 'turnkey' contracts where services can range from product engineering and design for manufacturing, through procurement, manufacturing and testing to distribution.

SCI designs and manufactures some products completely. For example, it designs and builds its own PCs, which are then badged by two big computer companies. Mr Armstrong acknowledges that there is some temptation for SCI to widen its business and sell products under its own name. However, he adds, 'in the end it's about doing what you are good at'. And for SCI that is being expert at capital intensive, high technology, flexible contract manufacturing.

In order to maximise flexibility while minimising costs SCI uses automated manufacturing systems and electronic data interchange (EDI) to provide sophisticated links with its customers and suppliers and to interconnect its own plants.

'The reason we are efficient is that each plant is a profit and loss centre. They have to make a profit,' says Mr Armstrong. The two European plants export 50 per cent of their production to continental Europe, and the percentage is rising so SCI is likely to build a new plant in Europe soon, probably in France.

When any of its plants reaches full capacity SCI builds another rather than expanding existing facilities. This is because it believes that overheads increase quickly when a plant becomes too large. 'Otherwise you become an OEM,' says Mr Armstrong. 'In our business small and medium is beautiful.'

SCI US United States of America P357 Computer and Office Equipment P35 Industrial Machinery and Equipment P36 Electronic and Other Electric Equipment COMP Company News P357 P35 P36 The Financial Times London Page 35 1298
Survey of Contract Electronics Manufacture (4): Partnership in an age of technical complexity - Ever more work is being farmed out Publication 930316FT Processed by FT 930316 By PAUL TAYLOR

THE use of contract manufacturers in the West grew rapidly over the past decade as managements reassessed their corporate strategies.

As a result many companies decided to concentrate on their core activities and turn other functions, including manufacturing, over to specialist contractors.

This reassessment was often prompted by the need to remain competitive in an increasingly global marketplace. It also highlighted other concepts such as total quality management and just-in-time inventory control which contribute to the success of Japanese companies.

Contracting out of manufacturing and assembly is well established in Japan. Recent research at Tokyo University suggests that it now accounts for over a third of Japanese companies' total manufacturing costs and will increase to over 40 per cent by the end of the decade. In the 1960s it was less than 20 per cent.

Most Japanese companies farm out manufacturing in the belief that specialists can offer better quality and efficiency. It may also help them to cut costs, scale down capital spending and concentrate on what they are really good at - market research, product definition, product planning, marketing and sales.

According to a survey by MHM, a market research organisation based in Ayr, Scotland, about 35 per cent of European contract electronics customers had no electronics assembly operations of their own.

There are many reasons why manufacturers use contract manufacturers and cost is not always the principal one. Some studies in the US suggest that managements who use sub-contractors principally to cut overheads and jobs end up regretting the decision.

Most management consultants argue that contract manufacturing should form part of an overall strategy to improve quality and competitiveness by delivering the right products to market at the right time and the right price.

The basis of total quality theory is to identify, and be responsive to, the customer, produce a top quality product first time, and work to improve quality all the time. A partnership with a contract manufacturer can help achieve these aims.

In any case, within the electronics industry the days are gone when OEMs can do everything themselves in order to retain most of the added value. Already most components are bought in and, since they are now so complex, the bulk of the cost of an assembled printed circuit board (PCB) lies in the components it carries.

As competition in the global electronics industry has grown the competent handling of these components, some of which may cost hundreds of pounds, has become crucial if a company is to maintain its profit margins.

'The diversification of disciplines and expertise in modern electronics is driving companies to reassess their core function and raison d'etre for being in the business,' says Mr Derek Duffett, director of the Association of Contract Electronics manufacturers (ACeM).

'The 80:20 rule applies to many aspects of business, be it range of products, or range of activities; in other words only 20 per cent of products or activities produce 80 per cent of the profit,' he adds.

Today companies, particularly large multinationals, are increasingly aware of the significance of both direct and indirect costs. Contracting out manufacturing frees capital to invest in core activities and enables the management to concentrate on key areas which will help to maintain a competitive edge.

In addition the advent of capital intensive processes such as surface mount technology (SMT) has encouraged many OEMs, particularly those outside the electronics industry, to leave such specialist activity to contract electronics manufacturers.

Electronic controls are replacing older electro-mechanical controls in many areas including automotive design, medical systems and a wide range of consumer goods such as washing machines. However many manufacturers cannot justify the cost of SMT or other automated manufacturing equipment which would stand idle much of the time.

Similarly the use of a contract manufacturer can remove the need to recruit and train expensive specialist staff. The contract manufacturer's employees represent a pool of dedicated technical and production expertise which is available to the customer. Indeed most contract manufacturers now offer a full range of services to their clients including, if required, PCB design, layout, manufacture and testing.

However greater flexibility and speed of response are probably the most important advantage of using contract electronics manufacturers. Most contract manufacturers have the capacity and flexible workforce to start production very quickly to meet an unexpected surge in demand.

A striking characteristic of today's electronics and computer markets is the shortening of product life cycles - in some parts of the computer industry they have shrunk to as little as six months and OEMs need to move quickly from one product and technology to the next.

Contract manufacturing can help to ensure this fast response and lessen the risk associated with manufacturing and holding inventory.

Contractors can also work with a customer to reduce costs during a product life cycle. Other potential advantages include economies of scale in component purchasing and the use of sophisticated computerised automated manufacturing and test sys tems to improve quality and provide 'just-in-time' deliveries. Most contract manufacturers have embraced total quality programmes, and obtained certification.

Sometimes there are significant cost advantages to using a contract electronics manufacturer. However, cost comparisons need to be approached carefully. Often the true costs of in-house manufacturing operations are obscured, for example by shared corporate functions. In addition, comparisons between CEMs in different parts of the world can be confusing.

On the basis of labour costs alone contract electronics manufacturers in the Far East continue to have an advantage over their counterparts in Europe and North America. However the gap is narrowing and the use of increasingly automated equipment means that the cost of labour is often relatively insignificant.

Most European CEMs also say that any cost advantage of manufacturing in the Far East can easily be offset by intangible costs such as delays in shipping and loss of design flexibility.

Indeed a number of PC manufacturers have recently brought manufacturing back from Far East contractors. ICL, for example, stopped buying its systems from Acer, one of Taiwan's biggest OEM suppliers, following a feasibility study by consultants KPMG. The machines are manufactured by ICL at its plant in Ashton-under-Lyne.

ICL also acts as a contract manufacturer in the UK for Sun Microsystems of the US. It says that its decision to bring manufacturing back from the Far East was based partly on increasing volumes and partly because the market was changing.

It found that the benefits of Far Eastern cheap labour were being out-weighed by the disadvantages - higher import duties, reconfiguration on arrival, the logistics of product being at sea for six weeks, arms length quality and technology changes leading to obsolete stock.

Mr Gordon Stewart of consultants Pittiglio Rabin Todd and McGrath argues that the demands placed on contract manufacturers have changed. 'Two issues are shaping the future of contract electronics manufacturing: volume flexibility and design integration.'

He says that price and quality are a given. 'The keys to competitiveness now are responsiveness - lead times, volumes - and the capacity to integrate manufacturing and test processes into an OEM's own product development strategy.'

But at an ACeM conference last year he also cautioned that many contract manufacturers fell a long way short of these expectations and only got by because few OEMs could manage a contractor relationship professionally.

Mr Duffett, the ACeM's director, acknowledges that for many managers, who are used to in-house manufacturing using bought-in piece parts, farming out work with independent CEMs represents a significant change of practice, calling for a radically new buyer/supplier relationship.

'The days of arm's length negotiations with choices based solely on lowest price and shortest delivery are over,' he says.

XA World P36 Electronic and Other Electric Equipment CMMT Comment & Analysis MGMT Management P36 The Financial Times London Page 35 1321
Survey of Contract Electronics Manufacture (3): Born with a silver spoon in its mouth - Profile of Quantum Electronics Manufacturing Publication 930316FT Processed by FT 930316 By PAUL TAYLOR

QUANTUM Electronics Manufacturing was born with an industrial silver spoon in its mouth.

Formed in January last year after a management buyout from Mitel Telecom, it inherited a purpose-built electronics plant in South Wales, the latest manufacturing equipment and a skilled and dedicated workforce used to high quality customer-driven manufacturing techniques.

The buyout, backed with Pounds 1.2m investment from 3i, the Welsh Development Agency, Mitel and the Bank of Wales, was organised by a group of managers who had successfully reorganised Mitel Telecom's operations in Portskewett, South Wales, following its acquisition by BT.

The Mitel reorganisation released space for the plant, considerable equipment and other resources.

Initially in March 1990 the managers, led by Dr Terry Summers, the plant's materials director, won the backing of Mitel to establish a sub-contract manufacturing operation using the plant's surplus resources.

The new manufacturing operation concentrated on low volume high technology contracts emphasising responsiveness to its customers. But the business required more capital investment and management time than Mitel could spare, so the management buy-out was organised and approved at the start of last year.

Since then Quantum's workforce has grown from 39 to more than 60, turnover is running at an annual rate of Pounds 4m and, despite the recession, the young company is already trading profitably. 'We are growing by the day,' says Dr Summers, who is now Quantum's managing director. Recently 3i, Mitel and British Coal Enterprise backed a Pounds 200,000 capital increase to support further growth.

Its customers include National Transcommunications, Inmos, the chip manufacturer, Research Machines, Encrypta, Thermocouple Instruments and Rediffusion Simulation.

Altogether the company has between 15 and 20 customers who mostly require low to medium volume contract manufacturing using leading edge technology, sophisticated test equipment and advanced computer based manufacturing systems organised on a cellular basis.

Like many other smaller players in the contract manufacturing business Quantum is a niche player, mostly serving customers in the business, industrial and professional sectors. None of its customers manufactures the assemblies which Quantum makes. 'We are their manufacturing department,' says Summers.

Although Quantum does not design for its customers it does like its project engineers to be involved at the design stage to help ensure that the design is compatible with high quality and low cost automated manufacturing.

It also prefers to buy the components because Dr Summers says this gives Quantum more control over quality and its customers are usually happy because 'more and more they are getting out of manufacturing'.

Production is organised on a cellular rather than production line basis and capabilities include conventional hand assembly, automated assembly using plated-through-hole (PTH) components, surface mount technology (SMT), mixed technology and electro-mechanical assemblies.

Most contracts are in the 1,000-3,000 board range with values of between Pounds 500,000 and Pounds 1m although Quantum does some high tech, low volume work with contracts valued at as little as Pounds 100,000.

Where Dr Summers believes Quantum scores over some of its larger rivals is in being able to provide customers with a highly flexible personalised service using leading edge technology such as SMT 'normally only associated with bigger companies'. It can also handle extremely complex products.

'Quantum's roots in an international electronics corporation gives us a unique insight into the needs of the industry,' Dr Summers declares in the company's sales literature.

'Our track record in the application of the most advanced manufacturing techniques will give you the competitive edge you need.'

He also believes Quantum's niche business is more secure and less risky than that of many of the larger players. He argues, for example, that because volumes are low there is little incentive for customers to consider going offshore with their business. 'They need people in the UK,' he says.

Quantum Electronics Manufacturing GB United Kingdom, EC P35 Industrial Machinery and Equipment COMP Company News P35 The Financial Times London Page 34 671
Survey of Contract Electronics Manufacture (2): Targets are being achieved - Profile of Electronics Design and Manufacturing Services Publication 930316FT Processed by FT 930316 By PAUL TAYLOR

A STATEMENT hangs on the reception wall of Electronics Design and Manufacturing Services' purpose-built headquarters at Maldon, Essex.

It says simply: 'Our aim is to establish EDMS as a significant force in contract manufacturing, primarily focusing on the needs of multi-technology based companies. We will achieve this by providing a quality manufacturing facility, with a professionally minded, technically capable workforce, and by developing a 'Partnership in Production' with all our customers and suppliers.'

EDMS appears to be well on the way to achieving its primary objectives. The company was originally a department within Industrial Control Services, supplying circuit boards for the UK-based international electronic safety systems group which obtained a Stock Exchange listing last year.

But it became a separate, fully owned ICS subsidiary in 1986 and has since grown quickly, moving into its custom-built 20,000 sq ft factory in 1990. Today, according to Mr John Reid, EDMS's managing director, only 10-15 per cent of its business comes from the parent company.

Although EDMS made a small operating loss in the year to May 31 last year, it has moved back into profit since then. In the first half it made an operating profit and should be profitable at the pre-tax level in the current second half, says Mr Andrew Leeser, group financial director. Contract manufacturing is, it seems, recession proof in terms of volume, but not in terms of margins.

EDMS's volumes have doubled in two years from Pounds 5m to Pounds 10m-Pounds 12m this year, reflecting growing interest in contract electronics in its prime computing, industrial, telecommunications, medical and consumer electronics markets.

Its customer base includes companies such as Acorn (EDMS produces motherboards for Acorn's educational computers), Reuters, Unicam and British Telecom. It exports its products throughout the UK and Europe where it distributes directly to Reuter's customers.

EDMS is a principally a niche player producing 'specialised products in (relatively) small volumes,' says Mr Reid. The service spans the range from prototype and small batch fast-turn around projects to medium volume production.

In particular, EDMS has targeted consumer goods manufacturers who are replacing electro-mechanical controls and incorporating sophisticated electronics into their products for the first time.

Since they lack the capital equipment or in-house electronics expertise, they represent a prime opportunity for innovative contract electronics manufacturers whose design engineers can work with them and produce electronic controls based on the latest surface mount technology (SMT).

Mr Reid sees 'a big growth opportunity' for companies whose core business relies on using SMT. Companies moving from mechanical to electronic controls 'are going straight to SMT', he says.

These days EDMS can provide customers with a cad/cam service to lay out cards using the latest surface mount technology. It also has a product engineer who spends one or two days a week with customers helping to design products to ensure that when it comes to manufacturing, 'we have taken out a lot of cost'.

Mr Reid, who is due to become chairman of the Association of Contract Electronics manufacturers at this month's Nepcon exhibition in Birmingham, calls this process 'design for manufacturing' or 'cost engineering'.

EDMS is now working with three of its customers on new products from design to manufacturing using its fully computerised cad/cam system to support printed circuit board layout. One product is a spectrometer designed in conjunction with a customer which has transferred all its PCB business to EDMS.

EDMS is also working with a computer product design house manufacturing a product to its design for the European market in direct competition with Far East imports.

To reinforce the 'partnership' between EDMS and its customers a programmes engineer is appointed to each new customer and retains full responsibility for that contract including its commercial, financial, technical and administrative aspects.

The recent rapid growth in the business means that EDMS has already outgrown its headquarters building which houses the company's Pounds 500,000 investment in fully automated in-line surface mount capability using Dynapert and Mydata equipment, together with comprehensive in-circuit, functional and temperature stress testing.

Unlike big companies which need high volumes to support their heavy capital investment, EDMS's contract volumes are much smaller, but nevertheless often involve highly complex mixed technology boards. So EDMS uses slower, more flexible surface mount machines capable of handling a wide range of components together with a highly skilled workforce which can undertake hand assembly where required.

A second 7,000 sq ft building which is being renovated will be used for EDMS's growing board upgrade and repair service and, at the end of last month, the company moved into a third Maldon manufacturing unit dedicated to building complete systems.

EDMS has spent Pounds 300,000 on the latest surface mount and test equipment for the 20,000 sq ft factory which will create jobs for 85 people in addition to the 150 already employed by the company. All three facilities are linked and controlled by a computer network which controls all procurement, manufacturing and finance.

EDMS chose its location carefully. In the early days of contract manufacturing most customers supplied all the components on a 'consignment' basis. It was therefore important to site the manufacturing facilities close to the original equipment manufacturers (OEMs) to minimise transport costs.

However, these days most customers rely upon the contract manufacturer to provide a full service including procurement. Physical location has become much less significant - particularly since most paperwork, and even design work, can be handled electronically using electronic data interchange (edi) systems.

Another distinctive feature of today's UK-based contract manufacturers is their commitment to quality standards. For example, all EDMS operations are governed by a company-wide quality management programme and all stages of administration, manufacture and testing are audited to internationally recognised quality standards.

EDMS is also working to maintain a high level of customer service. It has opened an office in Grangemouth, Scotland, to support its developing customer base in Scotland and Ireland. In addition, it has launched a sales drive to find business in new niche markets in continental Europe.

Mr Reid is very optimistic about the future. 'Britain is the centre in Europe for contract manufacture,' he says, and he is determined that EDMS will play a significant role in the development of European CEM.

Electronics Design and Manufacturing Services GB United Kingdom, EC P3672 Printed Circuit Boards COMP Company News P3672 The Financial Times London Page 34 1081
Survey of Contract Electronics Manufacture (1): Farewell to sweat-shops - A rapidly rising proportion of electronic equipment is now manufactured on behalf of the big international suppliers by outside contractors. Paul Taylor probes the reasons for the emergence of this expanding force within one of the world's predominant industries Publication 930316FT Processed by FT 930316 By PAUL TAYLOR

CONTRACT electronics manufacturing (CEM) has become the fastest growing sector of the European electronics industry and is on target to become a Dollars 22bn global business by the mid-1990s.

In the UK a group of dedicated contract electronics manufacturers have successfully shaken off the second-rate 'sweat-shop' image of sub-contract and assembly work in the 1960s by investing heavily in advanced production and test equipment, training and quality processes.

Today their big customers are blue chip multinationals such as IBM, Sony, Bosch, Motorola, AEG, and Matsushita which require fast response times, flexibility and first class quality, as well as cost-effective manufacturing. These companies are using contract manufacturers as part of their global strategies to maintain and improve international competitiveness.

From humble beginnings the UK industry has entered what Mr Bruce Armstrong, managing director of SCI Europe, describes as its third phase - strategic global partnerships between OEMs and contract manufacturers which can provide full turnkey services from design and printed circuit board layout, through to product distribution.

A handful of factors have fuelled the growth in CEM over the past decade. In particular, the pace of technological change has resulted in shortened product life cycles requiring increased manufacturing flexibility and worldwide manufacturing capability. In order to remain competitive in fast moving consumer-led markets companies have had to reduce the period it takes to bring new products to market.

At the same time electronic controls are replacing electro-mechanical devices in many consumer products such as cars and medical equipment whose manufacturers have little or no electronics manufacturing experience or capacity.

Meanwhile, the continuing push for smaller, more portable but more sophisticated products such as mobile phones and notebook computers requires greater silicon integration and results in more complex devices. These are best manufactured using advanced techniques for placing components on printed circuit boards such as surface mount technology which require expensive specialist machinery and expertise to design, assemble and test and which involve considerable 'manufacturing risk' because of market volatility.

The trend towards CEM also mirrors the move towards buying in a wide range of service and other peripheral corporate functions, backed by the management theory that organisations should focus on their 'core competencies' and contract out every thing else - creating what some observers have called 'the virtual corporation'.

Recessionary pressures have forced some managements to reconsider the 'make or buy' decision. But generally, although contract manufacturing can result in cost savings, most participants argue this should not be the primary motivation.

The arrival of the single European market has encouraged many Japanese and other original equipment manufacturers (OEMs) to set up locally in Europe. As MHM, a market research organisation based in Ayr, Scotland, noted in its latest study of the European CEM market, business from these companies 'has fuelled spectacular expansion in at least one CEM house'.

MHM describes the growth of the UK market in the 1980s as 'spectacular'. The turnover of the six largest sub-contract companies in the UK, SCI, Race, Avex, AB, Philips, Welwyn and Timex, grew by an average 42 per cent per year between 1984 and 1990.

Growth has slowed considerably since then, in part reflecting the recession and the sharp price war in the computer and IT sector which accounts for a still large, but declining, proportion of the CEM industry order book - a trend which has been partly offset by increased demand from new customers in the automotive, telecommunications and industrial sectors.

According to the Association of Contract Electronics Manufacturers (ACeM), part of the Electronic Components Industry Federation (ECIF), formed in 1990 to provide a voice for the emerging industry, the overall UK market was worth about Pounds 550m last year, and is growing at an underlying annual rate of 10-15 per cent. ACeM membership now totals 48 contractors representing 70-80 per cent of the UK CEM industry which, despite being capital intensive, employs around 10,000 people.

'Rapid growth over the last 10 years has resulted in a fragmented industry expanding on the back of a rapidly expanding electronics industry,' said Mr Eric Luckwell, chairman of Datalink Services, a small Loughborough-based CEM, in a study of the UK market.

'The capability of these organisations ranges from the very high volume and complex technological process, such as surface mount technology and automatic component insertion, to the very low volume and simple labour intensive processes,' he said.

Mr Derek Duffett, ACeM director, groups the UK CEM market into four groups.

Large companies dedicated to contract electronics include SCI and Avex, Scottish subsidiaries of US groups, which are also multinationals in their own right and whose main business is high volume, low margin work for big OEMs.

Their particular strengths are their capacity, sophisticated automated manufacturing systems, substantial component purchasing power and worldwide facilities. 'Our customers are global, so are we,' says Carol Brannigan, Avex Electronic's European sales and marketing director and chairman of ACeM's Promotions Committee.

'European customers and global companies operating in Europe are telling us they need total product life cycle management services not just PCB assembly and test,' she says. In response big CEMs are building what she calls 'a transparent or seamless partnership' linking CEM and customer using electronic data interchange (EDI), integrated MRP (Materials Requirement Planning) systems, CAD/CAM design systems and electronic mail.

Medium-sized dedicated CEMs are the second group. These generally maintain close links with OEM design houses working in specialist applications areas, such as the industrial and professional markets. Almost half of ACeM's membership falls into this category with most companies employing between 100 and 500 people. They include Welwyn Systems, the contract electronics subsidiary of the TT Group which also acquired AB Contract Electronics last year, and Race Electronics. Small start-up companies, the third group, emphasise their flexibility and personalised service, particularly to entrepreneurial businesses which may want prototypes built and tested or require low to medium manufacturing volumes.

The in-house contracting departments of original equipment manufacturers. These units have been created to fill spare capacity or diversify into new areas. Established players include Philips Circuit assemblies and Rank-Xerox Manufacturing Services. These companies often have access to specialised environmental and test equipment in design and failure analysis.

Recently they have been joined by other OEMs with excess capacity which, together with the arrival in Europe of new Far East competitors such as Flextronics, is causing concern in an industry which arguably already has excess capacity and thin margins.

'Presently the CEM industry can stand the additional capacity better than many other mature electronics sectors,' said the MHM report, 'but this situation will not continue indefinitely.'

An industry shake-out and reorganisation is widely expected amid forecasts that the industry will become increasingly polarised between the high volume, low margin multinational CEMs, and the much smaller niche companies.

Mr Gordon Stewart, UK director of specialist management consultants Pittiglio Rabin Todd & McGrath, told an ACeM conference in October that the dominant feature of the CEM industry in the 1990s will be the performance gap between an emerging super- league of multinational manufacturers and a horde of increasingly marginalised smaller competitors.

Because the UK market is maturing most of the large CEMs are adopting the twin strategies of trying to win back business which has gone offshore, particularly to the Far East, while also expanding overseas themselves.

Armed with internationally accepted quality assurance standards and total quality management programmes the UK's leading CEMs have been stressing the importance of looking at total costs - including loss of flexibility and transport delays - in their attempts to win back offshore business, and have been having some success. They are also helped by the increasingly capital intensive nature of the business, which means that labour cost differentials are growing less important.

However, they are handicapped by the prevailing duty and tariff structure which provides a significant incentive to import printed circuit boards or fully built equipment, which are mostly subject to a 4.5 per cent tariff, rather than semiconductors and other components which are generally subject to a 14 per cent tariff. The ACeM has begun to campaign for a more even playing field, arguing that a tariff change could help generate thousands of manufacturing jobs in the UK.

At the same time some CEMs have begun to establish footholds on the continent. The UK CEM market is considerably more developed than most of its European counter parts. The Germany market in particular is expected to grow rapidly and, together with France, is attracting attention.

Overall the European CEM market is reckoned to be worth about Dollars 6bn - which still leaves OEMs undertaking the vast majority of electronics manufacturing in-house. Despite their growth contract manufacturers have still only captured a fraction of the potential European market.

Arguably, of all the changes in the electronics industry over the past decade, the one that has gone most unnoticed, has been the emergence of quality contract electronics manufacturers. That is now changing.

XG Europe P36 Electronic and Other Electric Equipment CMMT Comment & Analysis MGMT Management P36 The Financial Times London Page 33 1558
Government Bonds: German rate cut hopes propel European prices higher Publication 930316FT Processed by FT 930316 By TRACY CORRIGAN, PATRICK BLUM and PATRICK HARVERSON LONDON, PRAGUE, NEW YORK

EUROPEAN bond prices ended mostly higher yesterday, boosted by growing expectations of a German rate cut.

GERMAN bond prices closed 1/8 point firmer as expectations that the Bundesbank will cut rates at its council meeting on Thursday gained ground.

A weekend agreement by the German government on a package of austerity measures, known as the solidarity pact, has prompted strong speculation that the Bundesbank will not be able to hold out any longer against pressure for a cut in official interest rates. However, the market fell from overnight highs in Tokyo.

The agreement 'makes it easier for the Bundesbank to cut rates because its creates a more organised fiscal structure,' said Mr Klaus Baader, an economist at UBS Phillips & Drew. He added that the fundamental effect was very small, but 'it caps the potential for chaos in public sector financing'.

The Euro D-Mark future on Liffe also benefited from mounting expectations of a cut. The March contract ended at 92.19, up from a previous close of 92-10.

UK GILT prices ended slightly higher in very thin trading. The market is expected to remain in suspense until today's government Budget statement.

THE DUTCH government sold Fl 1.4bn of the new 10-year state bond yesterday. Dutch bond prices rose in line with the German bond market.

THE Czech Republic has launched a Kcs2.5bn domestic Treasury bond issue - the first such issue for more than 50 years - which has been fully pre-placed with domestic investors. The four-year issue, arranged by Credit Suisse First Boston, carries a fixed coupon of 14.6 per cent.

'There are enough domestic investors willing to lend the government money. The response has been better than expected for an entirely new instrument. It also shows investors' confidence following the break-up of (the former) Czechoslovakia (in January),' said an analyst with CSFB.

The proceeds will be used to help finance a 1991 budget deficit of Kcs9.9bn.

US Treasury prices opened firmly then fell at the long end of the maturity range after rising commodity prices had revived fears of inflation.

In late trading the benchmark 30-year government bond was down 1/2 at 102 27/32 , yielding 6.896 per cent. At the short end of the market, the two-year note was unchanged at 99 5/8 , to yield 4.066 per cent.

Prices opened higher, buoyed by comments from Mr Alan Greenspan, the Federal Reserve chairman, who at the weekend said that the recovery remained 'tentative'.

The market then suffered a mid-morning setback, however, after the Commodities Research Bureau index jumped more than 2 1/2 points to 210.41. The CRB's rise, which some dealers said was a reaction to Saturday's huge snowstorm that hit the eastern US states and may have an impact on some crops, showed higher prices among a broad range of commodities.

The rise in the CRB unsettled Treasury investors, who fear that inflationary pressures may be building up in the economy as the recovery gathers pace. Last week the February producer prices index increased more than expected, and with yesterday's CRB rise, dealers and investors are nervously awaiting the February consumer prices report, which is due out tomorrow.

QR European Economic Community (EC) DE Germany, EC GB United Kingdom, EC NL Netherlands, EC CZ Czech Republic, East Europe US United States of America P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 32 589
International Capital Markets: Swiss drop bond issuance tax Publication 930316FT Processed by FT 930316 By AP-DJ ZURICH

THE SWISS federal cabinet yesterday abolished stamp tax on Swiss franc bond issuance by foreign borrowers with effect from April 1, AP-DJ reports from Zurich.

It was feared the 0.15 per cent tax on secondary market purchases, and 0.30 per cent tax on primary market purchases, would see Swiss franc bond issuance by foreign borrowers move from Switzerland to foreign marketplaces.

The federal council was given the power to remove the stamp tax in a national referendum on September 27.

Also, according to the Swiss finance ministry, a rule requiring that Swiss franc foreign bonds be syndicated by banks located in Switzerland, would be replaced by a regulation requiring only that the lead manager of the issue be located in Switzerland and not the entire syndicate.

CH Switzerland, West Europe P6231 Security and Commodity Exchanges GOVT Taxes P6231 The Financial Times London Page 32 160
Internationa Bonds: KfW raises DM1.5bn as German currency dominates Publication 930316FT Processed by FT 930316 By ANTONIA SHARPE

THE D-Mark sector of the international bond market was active yesterday as domestic and foreign borrowers decided that the time was right to lock into German interest rates.

The Bundesbank is widely expected to cut its leading interest rates at its council meeting on Thursday, following agreement at the weekend on the public financing for the 'solidarity pact' for the east German economy.

Syndicate managers said the rate cut had been discounted by the market. 'Many issuers feel that German interest rates are close to the bottom of their cycle for now,' one syndicate manager at a German bank said.

KfW International Finance USA, the financing arm of the triple-A rated German government agency for redevelopment, raised DM1.5bn through an issue of 10-year Eurobonds.

The bonds will be priced today, and are expected to yield 14 basis points over the 7 1/8 per cent bund due December 2003, the lower end of the indicated range. The bund yielded 6.54 per cent yesterday afternoon.

An official at the lead manager, Dresdner Bank, said that the bonds were widely distributed at home and elsewhere in Europe.

For some syndicate managers, the indicated yield spread on KfW's bonds appeared to be on the safe side, in order to allow some room for performance. They expected the spread to narrow to 12 basis points when the bonds were freed to trade. However, Dresdner said the bonds were fairly priced, in view of the 26 basis-point spread between yields on 10-year bunds and domestic bonds.

By contrast, there was general agreement in the market that the pricing on the Kingdom of Denmark's DM700m five-year Eurobond issue was tight. The bonds yielded 10 basis points over the series 105 of medium-term German government bonds. Some syndicate managers believed that it would be difficult for the bonds to keep to the launch spread once they were freed to trade, which is likely to happen early today.

WestLB, the lead manager, reported good demand for the bonds from central banks, attracted by their five-year maturity and the fact that the borrower is an European Community member.

Mr Niels Sorensen, head of the debt department, foreign area, at Denmark's National Bank, said that the proceeds from the issue were for the foreign exchange reserves of the central bank. The issue will almost complete the central bank's first-quarter borrowing programme of DKr12bn.

Mr Sorensen said the issue also lengthened the bank's debt maturity profile, which prior to yesterday's deal was about 1 1/2 years.

'We wanted to take out some longer-term debt now that German rates have come down,' he said.

CCF took advantage of investors' hopes of lower interest rates in France to raise FFr500m worth of five-year reverse floating rate notes, its second such issue since November.

The joint lead manager, Morgan Stanley, said the bonds were sold throughout Europe and were trading at their issue price late yesterday.

DE Germany, EC DK Denmark, EC FR France, EC P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 32 522
International Capital Markets: German commercial banks in EC protest Publication 930316FT Processed by FT 930316 By QUENTIN PEEL BONN

THE German Banking Federation, representing the commercial banking sector, yesterday agreed to make a formal complaint to Brussels about new rules allowing Germany's powerful state banks to register a big increase in their asset base.

The big private sector banks, including Deutsche Bank, Dresdner Bank and Commerzbank, are furious at the new ruling which allows the state banks to include the assets of their housing finance subsidiaries in their working capital base, and thus greatly extend their lending activities.

Mr Eberhard Martini, president of the banking federation, said a letter would be sent to the European Commission immediately after yesterday's annual meeting, asking whether the new rules conformed to EC guidelines on capital adequacy.

The main target of the banks is the Westdeutsche Landesbank (WestLB) which has succeeded in extending its working capital by DM4bn as a result of consolidating the assets of WFA, the housing finance institution for North Rhine-Westphalia.

Mr Martini said that the new ruling, made by the Bundesaufsichtsamt fur das Kreditwesen, the supervisory body for the banking sector, gave the public sector banks a significant competitive advantage over private sector banks.

DE Germany, EC P602 Commercial Banks P9651 Regulation of Miscellaneous Commercial Sectors GOVT Regulations P602 P9651 The Financial Times London Page 32 225
International Capital Markets: S&P reviews Volvo's short-term debt rating Publication 930316FT Processed by FT 930316 By CHRISTOPHER BROWN-HUMES STOCKHOLM

STANDARD & Poor's, the US credit rating agency, yesterday said it was reviewing the short-term debt rating of Volvo, the Swedish motor vehicle group, with a view to a possible downgrade, following a sharp increase in group debt and higher operating losses in 1992.

S&P said it had placed Volvo's single-A1 rating on Creditwatch with negative implications, but noted that the rating was unlikely to fall below single A2 because of the group's 'reasonable financial flexibility'.

Last week, Volvo announced a SKr4.75bn loss after financial items, compared with a SKr1.5bn profit in 1991, with operating losses rising to SKr2.25bn from SKr1.17bn. Net debt amounted to SKr13bn, up sharply from SKr7bn in 1991, with around SKr2bn attributed to currency fluctuations.

S&P said: 'In the face of continuing difficult trading conditions in its key markets, Volvo is constrained in its ability to contain debt useage. Debt is expected to remain higher for the foreseeable future.'

Last December, Moody's Investors Service downgraded Volvo's commercial paper ratings to Prime-2 from Prime-1.

Volvo SE Sweden, West Europe P3711 Motor Vehicles and Car Bodies COMP Company News P3711 The Financial Times London Page 32 207
International Company News: Sharp pre-tax fall at Inchcape Timuran group Publication 930316FT Processed by FT 930316 By REUTER KUALA LUMPUR

INCHCAPE Timuran, the Malaysian trading group, has posted a 47 per cent fall in group pre-tax profits to MDollars 13.34 (USDollars 5m) for 1992 from MDollars 25.31m in 1991, Reuter reports from Kuala Lumpur.

Turnover rose slightly to MDollars 376.32m from MDollars 346.52m. Inchcape said earnings were hit by slower growth in sales of consumer products and high interest rates while exports were hurt by the strengthening of the Malaysian dollar.

The company was cautious about 1993, saying an easing of credit restrictions had yet to lift sales of consumer goods.

Boustead, the Malaysian conglomerate, unveiled net profits of MDollars 12.74m for the first half to December 31 up 2 per cent from a year earlier, Reuter reports.

Inchcape Timuran Boustead MY Malaysia, Asia P6719 Holding Companies, NEC FIN Annual report FIN Interim results P6719 The Financial Times London Page 31 161
International Company News: Astra makes sweeping changes Publication 930316FT Processed by FT 930316 By WILLIAM KEELING

ASTRA International, the Indonesian motor company, has made sweeping boardroom changes prior to announcing its 1992 results which, brokers say, will show a 59 per cent fall in net profits to Rp87bn (Dollars 42m).

The changes follow the forced sale in January by the Soeryadjaya family, Astra's founders, of their majority stake in the company. Three of four family members have left the board, including Mr Edwin Soeryadjaya, formerly vice-president.

Mr Oskar Surjaatmadja, a former director-general of the ministry of finance and currently chairman of the Jakarta stock exchange, has been appointed president commissioner, equivalent to company chairman.

Mr Prajogo Pangestu, who led the consortium which bought into the Soeryadjaya stake, has become vice-president commissioner, while his close business colleague, Mr Henry Pribadi, has been made commissioner.

The senior management responsible for the company's day-to-day affairs remains largely unchanged, quelling investors' fears that the sale by the Soeryadjayas could prompt an exodus of top personnel.

The Soeryadjayas still own, directly or through nominee companies, more than 13 per cent of Astra but are expected further to reduce their stake to repay debts associated with their privately-owned Bank Summa, which collapsed in December owing Rp1,600bn.

Liquidators, led by the central bank, have currently agreed to repay large clients half their deposits. They hope to raise further finance by selling off the Soeryadjayas' extensive property interests.

Astra has yet officially to announce its 1992 figures, but brokers have been privately informed that net profits slumped to Rp87bn from Rp210bn in 1991. The company's vehicle sales fell 32 per cent to 97,239 units, although it increased market share year-on-year to 56.5 per cent from 54 per cent.

The net profits are higher than brokers' forecasts, reflecting a recovery in the last quarter.

Nevertheless, some new shareholders are reportedly keen to restructure Astra and possibly dispose of non-core businesses, which include timber, palm oil plantation and telecommunications subsidiaries.

Astra International ID Indonesia, Asia P5012 Automobiles and Other Motor Vehicles MGMT Management P5012 The Financial Times London Page 31 350
International Company News: Losses deepen at Aerospatiale Publication 930316FT Processed by FT 930316 By DAVID BUCHAN PARIS

FRANCE'S two leading aircraft makers yesterday provided further evidence of the problems afflicting the industry. Aerospatiale revealed a loss of between FFr1.5bn (Dollars 265m) and FFr2bn for last year, and Dassault Aviation forecast a small profit on reduced turnover this year.

In an interview with Les Echos, published yesterday, Mr Louis Gallois, president of state-owned Aerospatiale, said that the losses, after a first-half deficit of FFr477m, had deepened in the last six months of 1992.

Turnover last year was FFr51bn, but Mr Gallois forecast that 1993 would be 'a year of dead water, without dramas but without any pick-up in the market'.

Dassault executives said the company's turnover would fall about 10 per cent this year from the FFr14.4bn level recorded in the past two years.

However, profit would be of the same order of around FFr100m achieved in 1992 and 1991 because the company had cut costs and personnel, with the latter falling to 10,000 by end-1993.

But the Dassault officials were more optimistic about the company's medium-term future. Orders booked last year rose to FFr21.5bn, thanks largely to the sale of 60 Mirage 2000-5 fighters to Taiwan, a contract which Dassault coyly still refuses to confirm publicly because of China's hostile reaction to the deal.

By 1995, when Dassault's new range of business jet, the Falcon 2000, starts rolling off the production line, the company expects turnover to start rising again.

Senior Dassault executives said it might be 'a good idea' if the new conservative government, which is expected to take power after this month's elections, were to include the company in its privatisation programme and sell some of the French state's 46 per cent stake in the company.

Sextant Avionique, the avionics joint venture between Aerospatiale and Thomson CS, also forecast its turnover would continue to fall this year. But, like Dassault Aviation, it recorded an increase in orders booked last year.

Aerospatiale Dassault Aviation FR France, EC P3721 Aircraft FIN Annual report FIN Interim results P3721 The Financial Times London Page 30 353
International Company News: Doubts put share price surge on the line for NTT investors - A look into the background to the turnround in the Japanese group's stock Publication 930316FT Processed by FT 930316 By MICHIYO NAKAMOTO and EMIKO TERAZONO

IT IS difficult not to regard the rally in the share price of Nippon Telegraph and Telephone, Japan's telecommunications group, with at least a degree of suspicion.

After sliding steadily for the past five years, the country's most widely-held stock has gained 31.5 per cent in just 10 days from Y616,000 on February 26 to Y810,000 on March 12. Yesterday, the issue took a breather and closed down Y7,000 at Y803,000 (Dollars 6,819).

NTT's dramatic rise was the force behind last week's 1,219.82-point surge on the Tokyo stock exchange which took the Nikkei index over 18,000 for the first time since September 25.

The ostensible trigger for the new surge in NTT has been a number of developments suggesting the group may at last be finding its way out of a situation in which it faces growing competition, falling market share and slumping profits.

In the past few weeks there have been hints that the semi-private telecommunications group may be allowed to raise its call rates, and comments by senior government officials indicating they are keen to support the issue. In addition, there has been talk of public investment projects in a new telecommunications infrastructure.

The combination of these developments has spurred excitement over the group's near-term prospects.

But the timing of the rise in NTT, just before corporate Japan closes its accounts at the end of this month, arouses suspicions as to whether the fact these developments have all come at the same time is merely a coincidence.

'It was very cleverly timed,' says an analyst at Nomura Research Institute, the research arm of Nomura Securities. If any of the positive factors cited are realised, it would be good news for NTT.

For example, reducing the time of a call from Y10 for three minutes to Y10 for 90 seconds - the likely in a rate rise - would double NTT's operating profits by 1994, according to Mr Eric Gan, industry analyst at Kleinwort Benson.

In recent months, NTT has been lobbying heavily for a rise, fuelling speculation it has won some government support for its case.

'The time has finally come when we must really push for a price rebalance. Unless we do something the situation is going to affect our capital investments,' said Mr Tomeo Kanbayashi, vice-president. He was speaking at the group's announcement of its business plan for 1993 which was submitted to the ministry of posts and telecommunications last month.

The group has announced a restructuring programme to reduce the number of employees by 30,000 over the next three years and retail outlets by a third.

Comments made by a government official last week, accepting the need for an increase in pay phone rates, seemed to suggest government sympathy for NTT's cause.

NTT enthusiasts argue that the government, which still owns 65 per cent of NTT shares, has plenty of reasons for wanting to see the share price rise.

More than any other issue, NTT symbolises the hopes, and fears, of Japan's individual investors, many of whom invested in stocks for the first time when the government sold its first tranche in February 1987 for Y1.19m a share. By April 22 1987, the shares had climbed to a peak of Y3.18m.

However, a series of financial scandals, the plunge in the Tokyo stock market and concerns over NTT's business prospects led to a spectacular fall in the share price.

In the past three years, the issue has lost 80 per cent of its value, hitting an all-time low of Y453,000 last August.

Individual investors have become thoroughly disillusioned with NTT, with the brokers who recommended the issue and the authorities who appeared to have betrayed the public trust.

A strong rise in NTT would go a long way to lifting investor sentiment and help prepare the way for the launch this August of shares in JR East, a regional railway company created by the break-up of the state-owned Japan Railways, and in Japan Tobacco, in future.

The ministry of finance, which has been forced to postpone a fourth sale of NTT shares due to the market's weakness, could also do with the income to help pay for Japan's emergency spending package.

Furthermore, a rise in NTT's share price would help many of its corporate shareholders before the closing of their books this month.

Thus, the government could kill several birds with one stone by ensuring that NTT's share price rises.

The third bullish factor supporting NTT's rise has been the idea of a public works project focused on a new telecommunications infrastructure to stimulate the sagging domestic economy.

However, there is little concrete evidence to suggest that NTT will be able to get what it wants. The ministry of posts and telecommunications, has publicly expressed no sympathy for a rate hike in anything but pay phones. On the contrary, the ministry has continued to take a hard stance on an increase in other local call rates.

'We believe that if NTT restructures its local call operations it could actually make a profit there. If that happens, NTT may end up subsidising its long-distance operations, where it faces competition, with profits from its local call business, where it has a monopoly,' says Mr Kazuhiro Suda, director of the tariff division in the ministry's telecommunications bureau.

Meanwhile, plans for a government project to build a new telecommunications infrastructure have been roundly criticised by the ministry of international trade and industry, which believes such a move would undermine the whole purpose of having privatised NTT in the first place.

The question for investors then is how far those who are interested in talking up the share price are prepared to go, and, perhaps more crucially, how long will other investors be prepared to believe them.

Nippon Telegraph and Telephone JP Japan, Asia P4813 Telephone Communications, Ex Radio COMP Company News P4813 The Financial Times London Page 30 1019
International Company News: Pfizer wins ruling on heart valve case review Publication 930316FT Processed by FT 930316 By KAREN ZAGOR NEW YORK

PFIZER, one of the fastest-growing US pharmaceutical companies, has won a favourable ruling in a California Supreme Court regarding litigation over the company's Shiley heart valve.

The company had petitioned the court to ask the Court of Appeal to review two cases which would allow out-of-state recipients of the Shiley valve to file lawsuits in California. The Supreme Court granted Pfizer's petition, paving the way for the decision to be re-examined.

The California decision is important for Pfizer because California courts are believed to be more supportive of consumers than other courts.

Pfizer has been trying to keep the Shiley litigation out of California, especially for patients who do not reside in the state.

The earlier court decision ruled that foreign valve recipients did not have the same constitutional rights as US citizens to sue in California. About 50,000 people have received the heart valves made by Pfizer's California unit.

Pfizer, which has been trying to put the Shiley litigation to rest for several years, last year filed a comprehensive plan in a Cincinnati court, including a Dollars 215m class action settlement and an additional Dollars 300m in reserves to settle fracture claims.

The plan was accepted by the court but in Pennsylvania is awaiting a federal appeals court review.

Smith Corona, the US maker of portable typewriters, has predicted a substantial decline in third-quarter earnings. The company, 48 per cent owned by the Hanson group of the UK, blamed lacklustre economic recovery in the US and recession in Europe for its disappointing outlook.

Although the company expects a sharp drop in third-quarter earnings, it expects to remain in the black. In last year's third quarter to March 31, Smith Corona earned Dollars 4.9m, or 16 cents a share.

Pfizer Smith Corona Corp US United States of America P2834 Pharmaceutical Preparations P3579 Office Machines, NEC GOVT Legal issues COMP Company News P2834 P3579 The Financial Times London Page 30 341
International Company News: A troublesome brew in Germany's chemical industry - Recession, state intervention, a rising D-Mark and competition are responsible Publication 930316FT Processed by FT 930316 By CHRISTOPHER PARKES

The chemicals industry is dismayed by Chancellor Helmut Kohl's decision that the rump of its east German counterpart will be a core element in the region's recovery programme. On the Treuhand privatisation agency's plan to spend another DM1bn this year on restructuring in the east, Mr Wolfgang Hilger, Hoechst chairman, (left) asks if the government is not filling a bottomless bucket.

ONE of the more predictable features of recession is that it eventually goes away. But there are few consolations to the other spectres stalking Germany's chemicals industry.

Some are familiar. High labour and environmental costs have haunted manufacturers for years. Now, with government intervention, the rise of the D-Mark and the rapid increase in competition from low-cost manufacturers in Asia and elsewhere, labour and environmental costs are disturbing German management's sleep more than they used to.

The effects of medical service reforms, imposed from January by Mr Horst Seehofer, the new health minister, have had a dramatic immediate effect on the pharmaceuticals trade.

This was underlined this week when BASF followed its announcement of a 41 per cent profits slump last year with news that short-time working was to be introduced at its Knoll drugs subsidiary.

BASF said sales of some prescription drugs fell by 40 per cent in the first two months of Mr Seehofer's reforms.

Apart from prescription limits and higher charges for patients, the industry is having to cope with stringent price controls and cuts.

Drugs, traditionally the non-cyclical buffer cushioning German chemical company profits, now seem drained of their power to protect.

According to Mr Jochen Huckmann, a spokesman for the pharmaceuticals industry in the state of Hesse, the net effect of Mr Seehofer's economy package will be a reduction in earnings of between 20 and 30 per cent.

He estimates that local manufacturers, which account for almost 20 per cent of all German drugs output, suffered an average 24 per cent fall in sales during January.

Meanwhile, at the bulk chemicals end of the production scale, the area most sensitive to cyclical swings, the industry has been dismayed by Chancellor Helmut Kohl's decision that the rump of east German industry is to be retained as a core element in the region's recovery programme.

Remarking on the Treuhand privatisation agency's plan to spend another DM1bn this year on restructuring, Mr Wolfgang Hilger, chairman of Hoechst, questioned mildly if there were markets enough to absorb the east's output.

He asked, more sharply, if investments on this scale were sensible and if the government was not committing itself to filling a bottomless bucket.

The answers appear clear enough. But, in the absence of discernible signs of new industrial growth in the former DDR, the government is not going to change its mind.

Meanwhile, although Bonn may ease some of its more rigorous strictures on the health service, Mr Seehofer's intervention and trends in international markets indicate that margins and profits will continue to be squeezed.

How successfully the German industry picks its way across this dramatically altered landscape remains to be seen. The direction it has taken has been clear for some time, but the pace has been slow and hesitant.

Although average profits fell by 25 per cent in 1990 and 20 per cent in 1991, it was not until last year, when earnings fell 30 per cent, that there was serious reduction in the numbers of people employed. More than 20,000 jobs are expected to go this year - following a mere 8,000 job cuts in 1992.

Structural adjustment has also been sluggish and not always successful. Among Germany's big three, BASF is most dependent on mainstream chemicals. Accordingly, it has suffered most.

Ironically, most of BASF's difficulties stem from its 'non-chemical' activities, which include heavy lossmakers such as magnetic tapes.

These businesses, which together account for some 48 per cent of sales, are estimated to contribute just 2 per cent of profits. But change is coming - through a DM4.6bn investment in a pipeline network, which will bring in Russian gas and oil, plus a stable flow of profits. Energy interests already account for around 25 per cent of group earnings.

Meanwhile, the company is trying to escape Germany's high-cost trap by placing chemicals investment abroad.

A new steam cracker opens in Antwerp later this year, for example, and 60 per cent of the group's European spending outside the home market this year will go to the Belgian site. In another more recent structural move, it swapped its acrylics business for ICI's polypropylene interests.

Both strategies are driven by BASF's conviction that building up critical mass and a cost-competitive edge in core sectors will help it resist the capacity cuts widely believed necessary in the European chemicals industry. It hopes this will enable it to emerge from the anticipated bloodletting in the European chemicals sector relatively unscathed.

The recent decision by Hoechst to merge its PVC activities with Wacker Chemie, accompanied by reorganisation at Celanese, was aimed at the same end.

Bayer sits on its laurels as the first of Germany's big three to bite decisively into its costs. Until now, it has been a distinct favourite among investors, who are content with the estimated 75 per cent contribution to profits from its drugs and information technology businesses. But last week's 16 per cent fall in annual profits to DM2.7bn showed not even the one of the big streamlined chemicals companies can escape the grip of world recession.

DE Germany, EC P28 Chemicals and Allied Products CMMT Comment & Analysis P28 The Financial Times London Page 29 952
International Company News: Credit Lyonnais takes over Peru bank Publication 930316FT Processed by FT 930316 By SALLY BOWEN LIMA

CREDIT Lyonnais has become the first foreign bank for many years to assume majority control over a domestic Peruvian bank.

The French bank has regained control of the Banco de Lima after having a minority holding for a considerable time.

Legislation hostile to foreign participation had forced Credit Lyonnais to reduce its original majority stake in the Lima bank to under 20 per cent.

Lima bank was founded in 1952.

To regain overall control, Credit Lyonnais has increased its capital in the Banco de Lima by Dollars 8m.

The French bank said that it would seek to play a role in the forthcoming privatisation of Peru's state-owned companies and the development of the country's capital markets.

Credit Lyonnais holds some Dollars 200m of Peruvian debt paper, including around Dollars 50m in short-term working capital debt - expected to be the first to be accepted in privatisations.

Credit Lyonnais Banco de Lima PE Peru, South America P6011 Federal Reserve Banks COMP Acquisition P6011 The Financial Times London Page 29 187
International Company News: BTP rescue package agreed Publication 930316FT Processed by FT 930316 By ALICE RAWSTHORN

COMPAGNIE BTP, the French bank that specialises in finance for the property and building sectors, has agreed an emergency rescue package to cut costs and restructure its finances.

The plan includes a radical reduction of 35 per cent in overheads, chiefly by shedding 220 staff. BTP, which has been badly affected by the downturn in the French property market, is also trying to salvage its finances by transferring FFr3.2bn (Dollars 560m) of property loans to a new company.

The new company will be controlled by BTP's existing shareholders, which include a number of prominent names in French finance and construction, including Credit Lyonnais and Credit National, the banks, and the Bouygues building group.

The BTP board, led by Mr Jean Bayle, chairman, has been trying to finalise negotiations for the rescue package since last autumn. BTP is the latest in a long line of French financial groups to have fallen into financial difficulty because of the precarious state of the property market.

Credit Lyonnais, the state-controlled bank which owns 4.1 per cent of BTP, last week disclosed that it produced its worst results for 20 years in 1992, partly because of its property problems. Other banks, including Paribas and Indosuez, have also been hit, as well as the French insurance companies.

However, BTP is one of the most vulnerable institutions given that it specialises in property. It fell into the red with a net loss of around FFr720m last year, after making provisions of FFr600m, from net profits of FFr62m in 1991.

The company said it hoped to break even this year, following the rescue plan, and to return to 'normal profit levels' in 1994.

Compagnie BTP FR France, EC P602 Commercial Banks COMP Company News P602 The Financial Times London Page 28 309
International Company News: UAP calls on Suez to reopen talks on Victoire Publication 930316FT Processed by FT 930316 By ALICE RAWSTHORN PARIS

UNION DES Assurances de Paris, France's largest insurance group, yesterday called on Suez, the French holding company, to reopen negotiations about the future of Victoire, the French insurer, and Colonia, its German subsidiary.

Suez, which has been clouded by bid speculation since the announcement earlier this month that it made its first-ever loss in 1992, last year broke off the Victoire talks. UAP, a minority investor in both Suez and Victoire, had for years hoped to swap its Victoire shares for control of Colonia.

Mr Jean Peyrelevade, UAP chairman, said the negotiations 'must be reopened, sooner or later'. The breakdown of the Victoire talks was seen as a personal blow for Mr Peyrelevade, a socialist appointee whose position at UAP may be vulnerable if, as the polls suggest, the conservatives win the elections.

However, Mr Gerard Worms, chairman of Suez, has refused to reopen negotiations. Suez said the issue was not on the agenda although it was 'not inconceivable' that talks would resume in the future.

UAP yesterday also secured shareholder's agreement to acquire a 37.35 per cent stake in Nordstern, the German insurer which is the most profitable part of Colonia, from Winterthur, the German financial group, in return for FFr1.5bn (Dollars 260m) of UAP shares.

The Nordstern investment has been interpreted as an attempt by Mr Peyrelevade to step up the pressure on Suez by trying to restrict Colonia's control over the company.

Mr Peyrelevade's manoeuvres might be helped by Suez's recent problems. Suez, which made a FFr1.8bn loss last year, has been badly affected by the economic slowdown and by the effects of the Paris property crisis on its banking activities.

Mr Peyrelevade stressed UAP had not participated in the recent buying of Suez shares. 'Like many other shareholders, we are very concerned with the situation at Suez and hope the management can address its problems,' he said.

Union des Assurances de Paris Colonia Versicherung Victoire Union des Assurances de Paris Compagnie de Suez FR France, EC P6311 Life Insurance P6411 Insurance Agents, Brokers, and Service COMP Company News P6311 P6411 The Financial Times London Page 28 372
International Company News: ISS ahead 9% despite sales setback Publication 930316FT Processed by FT 930316 By HILARY BARNES COPENHAGEN

ISS, the international industrial cleaning group, reported a 9 per cent increase in net profits to DKr266m (Dollars 41.49m) in 1992 from DKr244m last time. Pre-tax profits were up by 15 per cent to DKr374m from DKr332m.

Sales were down to DKr11.35bn from DKr11.80bn, due to divestments, adverse foreign exchange developments and difficult trading conditions in Sweden and Brazil.

Earnings per share increased to DKr61 from DKr56. An unchanged DKr10 per share dividend was proposed. The board also proposed a scrip issue of one new for five old shares and a share split by which shares of DKr100 face value will be split into five shares of DKr20 each.

Sales increased in Scandinavia to DKr5.07bn from DKr4.98bn, but operating profits slipped to DKr288m from DKr305m. Sales were down in both the other main divisions, to DKr2.94bn from DKr3.34bn in Europe and Brazil and to DKr3bn from DKr3.21bn in North America.

Operating profits in Europe and Brazil were down to DKr159m from DKr177m, and in North America to DKr127m from DKr133m.

ISS International Service System DK Denmark, EC P7349 Building Maintenance Services, NEC P366 Communications Equipment P0781 Landscape Counseling and Planning FIN Annual report P7349 P366 P0781 The Financial Times London Page 28 221
International Company News: Euroc profits decline to SKr129m as sales slide Publication 930316FT Processed by FT 930316 By CHRISTOPHER BROWN-HUMES

EUROC, the Swedish building materials group, saw 1992 profits after financial items fall to SKr129m (Dollars 16.9m) from SKr151m a year earlier, with efforts to cut costs and release capital largely offsetting a big downturn in the building market. The dividend is being maintained at SKr2 per share.

Sales slumped to SKr9.5bn from SKr10.5bn, with a particularly severe decline in Sweden and Finland where sales were down 20 to 30 per cent. Operating income dropped to SKr542m from SKr740m.

The group's performance was helped by a sharp reduction in net financial expense which fell to SKr396m from SKr593m, after a scaling down of operations in some markets.

The group sold its stake in Valenciana, the Spanish cement and ready-mix company, incurring a SKr279m extraordinary loss, but it says the move will cut its annual financial costs by SKr150m.

Euroc's cement operations improved earnings to SKr124m from SKr39m, but the building material activities saw profits fall to SKr84m from SKr204m. Losses within building materials distribution deepened to SKr29m from SKr14m.

Euroc forecasts that it will remain in profit in 1993.

Euroc SE Sweden, West Europe P32 Stone, Clay, and Glass Products FIN Annual report P32 The Financial Times London Page 28 220
International Company News: Avesta Sheffield doubles loss, holds payout Publication 930316FT Processed by FT 930316 By CHRISTOPHER BROWN-HUMES STOCKHOLM

AVESTA SHEFFIELD, which has become Europe's largest stainless steel group following the recent merger of Avesta and British Steel's stainless steel operations, yesterday disclosed a SKr564m (Dollars 72.33m) loss, after financial items, for 1992.

Weak market conditions were aggravated by merger expenses and the costs of starting up a new mill, the company said.

The deficit was more than double 1991's SKr248m loss and led the company to scrap its dividend after a SKr1 per share pay-out in 1991.

'The most important reason for the negative result is that product prices have fallen more than raw material prices,' the group said. It blamed industry over-capacity and increased nickel exports from the former eastern bloc for the fall in prices, while noting that demand was restrained by recession in many important markets. It said European demand for hot rolled plate, pipes, tubes and long products fell, while demand for cold rolled products rose just 1 per cent, compared with a normal 4 to 5 per cent.

Sales amounted to SKr7.59bn, compared with SKr7.39bn in 1991, with SKr842m generated by British Steel's stainless operations in the two months following the completion of the merger on November 2. Excluding this contribution, sales were down 9 per cent.

The overall loss would have been lower but for SKr171m adverse movement in inventory prices, SKr50m in merger costs, and SKr101m related to the start-up of the group's hot strip rolling mill in Avesta.

The group originally expected the merger to produce SKr400m of annual cost savings from 1995, but now says it expects the benefits to be greater and to take effect as early as 1993.

British Steel owns 40 per cent of the group.

Avesta Sheffield SE Sweden, West Europe P3312 Blast Furnaces and Steel Mills FIN Annual report P3312 The Financial Times London Page 28 321
International Company News: French dairy products group static at FFr354m Publication 930316FT Processed by FT 930316 By ALICE RAWSTHORN

BONGRAIN, the fast-expanding French cheese and dairy products group, made static profits of FFr354m (Dollars 62.51m) last year.

The group, which has grown rapidly in recent years through a series of acquisitions culminating in last summer's deal whereby it took managerial control of ULN, the ailing French dairy co-operative, also saw sales stabilise at FFr9.7bn in 1992.

Mr Jean-Hughes Vadot, finance director, said Bongrain had been affected by a slowdown in consumer spending across all its markets, with the exception of Germany. He said there had been a sharp slowdown in France, still the group's biggest market with 47 per cent of sales, particularly in the second half of the year.

Despite the competitive climate, Bongrain would have registered an increase in net profits for its ongoing businesses of 7.2 per cent had exchange rates remained stable.

However, the franc's strength since the autumn currency crisis reduced the contribution from exports and overall net profits grew below the rate of inflation by 1.1 per cent from FFr350m in 1991 to 1992's FFr354m.

Bongrain FR France, EC P2022 Cheese, Natural and Processed P202 Dairy Products FIN Annual report P2022 P202 The Financial Times London Page 28 214
International Company News: Rhone-Poulenc Rorer share buy-back Publication 930316FT Processed by FT 930316 By WILLIAM DAWKINS PARIS

RHONE-POULENC Rorer, the pharmaceuticals unit of France's largest chemicals group, plans to buy up to 5m of its own shares, worth Dollars 236m at yesterday's opening price.

The move, intended to support RPR's flagging share price and obtain cheap capital for an employee benefits trust, is routine in the US. It is unusual in France, though Rhone-Poulenc, RPR's parent, did announce it was buying RPR shares last month. Yesterday's operation will lift RPR's earnings per share by reducing the number of shares outstanding, said the group.

RPR's share price had fallen by roughly 20 per cent over the past nine months, said Mr Patrick Langlois, chief financial officer. This was in line with a general fall in US drug companies' shares, which were hit by investors' fears over the Clinton administration's plans to cut healthcare spending plus a general shift of interest to industrial companies likely to benefit more than pharmaceuticals from the US economic revival. 'The whole sector is undervalued. We think that RPR has significant potential not recognised in the share price,' he said.

RPR will buy the shares, which amount to 3.6 per cent of its 138.3m shares in issue, in the open market over an unspecified period starting now. Last month, Rhone-Poulenc bought an extra 2.05 per cent of its subsidiary, now 68.68 per cent owned by the state-controlled chemicals group. Rhone-Poulenc said it wanted to show confidence in RPR at a time when RPR's share price did not reflect its full potential.

The shares being bought by RPR will go into an employee trust to finance a range of benefits such as savings and stock plans, pensions and healthcare. Over time, the trust will be free to allocate or sell the shares.

Cap Gemini Sogeti, Europe's largest provider of computer services, yesterday announced that it would offer Pounds 137m (Dollars 196m) to buy out the remaining 30 per cent minority stake in Hoskyns, its UK subsidiary.

CGS bought 69.3 per cent of Hoskyns, which manages companies' computer systems, in 1990 and undertook at the time to offer to buy out the rest before mid-March 1993.

Minority investors are being offered 469p per share, slightly more than the most recent market price of 462p. CGS paid Pounds 199m, or 330p per share, for control of Hoskyns in 1990.

Rhone Poulenc FR France, EC P2834 Pharmaceutical Preparations P7379 Computer Related Services, NEC FIN Share issues COMP Acquisition P2834 P7379 The Financial Times London Page 28 425
UK Company News: Ransomes in the black with Pounds 900,000 Publication 930316FT Processed by FT 930316 By CATHERINE MILTON

BETTER GRASS growing conditions helped Ransomes, the grass cutting machinery maker, return to profitability in 1992. The group, however, remained highly geared.

Pre-tax profits amounted to Pounds 900,000 and replaced losses of Pounds 4.6m on turnover 6.7 per cent higher at Pounds 156.6m (Pounds 146.7m).

Aggregate turnover at the America and commercial divisions rose to Pounds 112.7m (Pounds 110.7m) and gave an aggregate operating profit ahead 64 per cent, from Pounds 4.2m to Pounds 6.9m.

The consumer division increased turnover by 22 per cent to Pounds 43.9m (Pounds 36m) giving an operating profit of Pounds 2.7m (Pounds 600,000).

Tax more than doubled from Pounds 600,000 to Pounds 1.3m - an effective charge of 48 per cent of profits before the exceptional item - largely arising out of unrelieved overseas losses.

Currency movements contributed to a rise in gearing from 175 per cent to about 250 per cent.

Losses per share worked through at 9p, against 17.3p last time.

A Pounds 1.8m (Pounds 1.5m) exceptional charge was provided for the write down of assets on the transfer of the Brouwer operation from Canada to the US.

Ransomes GB United Kingdom, EC P3523 Farm Machinery and Equipment P3524 Lawn and Garden Equipment FIN Annual report P3523 P3524 The Financial Times London Page 27 230
UK Company News: Tough US trading hits JIB Publication 930316FT Processed by FT 930316 By RICHARD LAPPER

TOUGH trading conditions in the United States insurance market and international reinsurance markets depressed pre-tax profits at JIB Group, the insurance broker, to Pounds 18.2m in 1992, against Pounds 20.1m.

Lower interest rates also affected the result to leave earnings per share down 26 per cent, from 13.6p to 10.1p.

A final dividend of 5p is proposed, making a total for the year of 7.5p. Last year there was a single final of 5p.

'In difficult markets and difficult times we have not done too badly,' said Mr Nick Cosh, finance director of the company, which is a subsidiary of Jardine Matheson Holdings.

Turnover increased to Pounds 175.9m (Pounds 168.9m). There was a lower contribution from the US of Pounds 79.5m (Pounds 80.6m), offset by increases in the UK and Ireland to Pounds 71.7m (Pounds 66.8m) and Asia Pacific to Pounds 24.8m (Pounds 21.5m).

Administrative expenses rose to Pounds 176.3m (Pounds 165.2m), partly because of a number of one-off costs.

JIB Group GB United Kingdom, EC P63 Insurance Carriers FIN Annual report P63 The Financial Times London Page 27 196
UK Company News: Claremont Garments advances to Pounds 8.47m Publication 930316FT Processed by FT 930316 By JANE FULLER

CLAREMONT Garments (Holdings), which last summer expanded its business with Marks and Spencer through the purchase of J&J Fashions, increased pre-tax profit by 35 per cent, from Pounds 6.28m to Pounds 8.47m, over the 12 months to December 26.

The share price gained 5p to close at a new high of 345p. It has climbed from 154p in July 1991, the month that Claremont demerged from Alexon, the retailer.

J&J and Alexander Milnes, a much smaller buy, added Pounds 27m to turnover, which increased 60 per cent to Pounds 81.5m (Pounds 50.9m) - of which about 95 per cent goes to M&S. The acquisitions were included for five to six months.

A 2-for-5 rights issue raised Pounds 22.1m towards total spending of about Pounds 29m on acquisitions. The extra equity limited the advance in earnings per share to 19 per cent at 16.4p (13.8p).

Mr Peter Wiegand, chairman, said three of J&J's factories had been closed and some of its work transferred to Claremont factories. About 400 jobs had been shed.

A final dividend of 3.95p makes a total of 7.25p (6.5p).

COMMENT

Claremont has benefited both from the resilience of M&S and from its own management rigour in wringing impressive margins from that business. The tantalising prospect of similar discipline being imposed on J&J has helped drive the share price forward. The only surprise in yesterday's results was the pleasant one of cashflow being much stronger than expected. Most of the acquisition debt plus Pounds 1.9m of reorganisation costs were rapidly cancelled out. For the future, apart from J&J, the main scope for organic growth seems to lie in exports to the Continent. The corporate wear business has promise but is small and the M&S cocoon becomes a bit of a straitjacket when the group considers selling to other retailers. A more serious prospect for medium-term growth is that Claremont will acquire further M&S suppliers. A conservative pre-tax profit forecast of Pounds 11m this year gives a prospective p/e of nearly 19 times. This is well up with events, but it remains worth holding as a quality stock.

Claremont Garments (Holdings) GB United Kingdom, EC P6719 Holding Companies, NEC P23 Apparel and Other Textile Products FIN Annual report CMMT Comment & Analysis P6719 P23 The Financial Times London Page 27 399
UK Company News: Ramus still in red Publication 930316FT Processed by FT 930316

Ramus Holdings, a distributor of ceramic wall and floor tiles and self assembly kitchen furniture, remained in the red for the six months to December 31.

At the pre-tax level, the loss was Pounds 1.76m (profit of Pounds 142,000). There was a full year loss of Pounds 2.95m. Turnover fell from Pounds 27m to Pounds 22.3m and losses per share emerged at 25.4p (earnings of 2.3p).

Ramus Holdings GB United Kingdom, EC P5032 Brick, Stone and Related Materials FIN Interim results P5032 The Financial Times London Page 27 101
UK Company News: Antofagasta up 23% Publication 930316FT Processed by FT 930316

Profits of Antofagasta Holdings, which has mining, banking, rail transportation and water distribution interests in Chile, rose 23 per cent to Pounds 23.5m over the year to end-December. Turnover improved 26 per cent to Pounds 72.1m.

Earnings rose 9.8p to 60p and the total dividend is lifted 1p to 20p via an increased final of 14p. The shares advanced 20p to 840p.

Antofagasta Holdings GB United Kingdom, EC P10 Metal Mining P4011 Railroads, Line-Haul Operating P4941 Water Supply FIN Annual report P10 P4011 P4941 The Financial Times London Page 27 102
UK Company News: European Leisure back to profit with Pounds 54,000 Publication 930316FT Processed by FT 930316 By RICHARD GOURLAY

EUROPEAN LEISURE, the disco and snooker hall operator which is being investigated by the Serious Fraud Office and is beset by high debt, reported pre-tax profits of Pounds 54,000 for the six months to December 31.

Last year there were losses of Pounds 45.8m after a Pounds 34.6m exceptional charge to cover losses on disposals. Sales fell 10 per cent to Pounds 35.3m (Pounds 39.1m).

The net interest charge rose from Pounds 3.76m to Pounds 4.1m. Debt was unchanged at Pounds 76.6m for gearing marginally higher at 227 per cent. Losses per share were 0.65p (28.6p).

Distributable reserves remained inadequate to pay either the preference or the ordinary dividend.

Mr Ian Rock, chief executive, said SFO investigations over the takeover of Midsummer Leisure were continuing but did not affect the daily operation of the company.

Its bank facilities expire in July by which time it hoped to have worked out a programme to take the group forward.

During the year the group sold 23 units, and withdrew almost entirely from France. There were six loss-making units in the UK still to be sold. Mr Rock said that at this stage he did not envisage the need for more provisions covering disposal losses.

Debt had not fallen as the units sold had made losses and because there had been investment in the remaining 125 profitable disco and snooker units, Mr Rock said.

'There is nothing wrong with the business,' he added. 'The future is dependent on finding a proper solution to our debt problem.'

European Leisure GB United Kingdom, EC P7999 Amusement and Recreation, NEC FIN Interim results P7999 The Financial Times London Page 27 294
UK Company News: Argos closes its first diversification Publication 930316FT Processed by FT 930316 By NEIL BUCKLEY

ARGOS, the catalogue showroom retailer, is closing its four Chesterman furniture stores less than a year after they opened, due to disappointing sales. Chesterman was Argos's first diversification away from its traditional catalogue business since its demerger from BAT Industries in 1990, writes Neil Buckley.

The retailer said the economic climate had changed since the stores were conceived, and Chesterman's sales of only Pounds 3m in the trading year to January 2 were 'significantly below expectations'.

Start-up costs and operating losses for last year were Pounds 6.2m, while the stores had incurred an operating loss in the trading year to date of Pounds 1.5m.

The closure costs, estimated at Pounds 12.7m, will be taken as a charge in the full-year results.

Argos Chesterman GB United Kingdom, EC P5712 Furniture Stores COMP Company News RES Facilities P5712 The Financial Times London Page 27 159
UK Company News: Claremont Garments advances to Pounds 8.47m Publication 930316FT Processed by FT 930316 By JANE FULLER

CLAREMONT Garments (Holdings), which last summer expanded its business with Marks and Spencer through the purchase of J&J Fashions, increased pre-tax profit by 35 per cent, from Pounds 6.28m to Pounds 8.47m, over the 12 months to December 26.

The share price gained 5p to close at a new high of 345p. It has climbed from 154p in July 1991, the month that Claremont demerged from Alexon, the retailer.

J&J and Alexander Milnes, a much smaller buy, added Pounds 27m to turnover, which increased 60 per cent to Pounds 81.5m (Pounds 50.9m) - of which about 95 per cent goes to M&S. The acquisitions were included for five to six months.

Claremont has about 10 per cent of the M&S ladies wear market, according to Mr Peter Wiegand, chairman.

A 2-for-5 rights issue raised Pounds 22.1m towards total spending of about Pounds 29 on acquisitions.

The extra equity limited the advance in earnings per share to 19 per cent at 16.4p (13.8p).

Mr Wiegand said three of J&J's factories had been closed and some of its work transferred to Claremont factories. About 400 jobs had been shed.

Much of J&J's senior management had gone, he said. The group also parted company with Mrs Jenifer Rosenberg, one of the founders, in an out-of-court settlement involving the payment to her of roughly Pounds 100,000.

Mr David McGarvey, managing director, said the manufacturing side of J&J had been neglected. It had been a turnover and design-led company rather than 'exploiting the profitability that comes from volume'.

J&J's pre-acquisition operating margins had been about 4 per cent compared with 13-plus at Claremont. It was hoped to get the combined group average up from about 8.5 to 10 per cent this year.

Net debt rose by Pounds 1m to Pounds 3m. On expanded shareholders' funds gearing stayed at about 15 per cent - lower than expected at the time of the acquisition.

A proposed final dividend of 3.95p makes a total of 7.25p (6.5p).

COMMENT

Claremont has benefited both from the resilience of M&S and from its own management rigour in wringing impressive margins from that business. The tantalising prospect of similar discipline being imposed on J&J has helped drive the share price forward. The only surprise in yesterday's results was the pleasant one of cashflow being much stronger than expected. Most of the acquisition debt plus Pounds 1.9m of reorganisation costs were rapidly cancelled out. For the future, apart from J&J, the main scope for organic growth seems to lie in exports to the continent. The corporate wear business has promise but is small and the M&S cocoon becomes a bit of a straitjacket when the group considers selling to other retailers. A more serious prospect for medium-term growth is that Claremont will acquire further M&S suppliers. A conservative pre-tax profit forecast of Pounds 11m this year gives a prospective p/e of nearly 19 times. This is well up with events, but it remains worth holding as a quality stock.

Claremont Garments (Holdings) GB United Kingdom, EC P6719 Holding Companies, NEC P23 Apparel and Other Textile Products FIN Annual report CMMT Comment & Analysis P6719 P23 The Financial Times London Page 27 546
UK Company News: Takare rises 56% to Pounds 12m - Beds increase from 2,625 to 4,335 with a further 1,170 on the way Publication 930316FT Processed by FT 930316 By MAGGIE URRY

TAKARE, the nursing homes group, raised profits by 56 per cent in 1992 to Pounds 11.8m, against Pounds 7.6m. Sales rose 62 per cent, from Pounds 29.7m to Pounds 48m.

Operating profits rose 61 per cent to Pounds 10.9m (Pounds 6.77m), and interest received was Pounds 941,000 (Pounds 823,000) after capitalising Pounds 4.2m (Pounds 3.1m) of interest payments.

Earnings per share growth was slower, at 20 per cent to 12.1p (10.1p), because of the full year impact of the share issue in September 1991. A final dividend of 1.2p (0.6p) is proposed for a total of 1.8p.

Mr Keith Bradshaw, chairman, said the reforms to state funding of care for the elderly chronically ill, which take effect from April 1, were now clearer. Funding of Pounds 524m for 1993-94 was adequate, he said, with a majority commited to the independent sector. The principle of patient's choice of home had been enshrined in the reforms.

Takare has been in talks with all the social security departments in areas where it has homes and expected to agree prices and admissions policies with them all before April 1, Mr Bradshaw said. It had also signed long term contracts with three health authorities since details of the new system were announced last autumn.

During 1992 Takare increased its beds from 2,625 to 4,335 and has since opened another 450 with 720 under construction due to be completed by April 1. Gearing rose from 10 to 41 per cent.

Mr Bradshaw said that although Takare could fund development costs of Pounds 75m over 1993 and 1994 from existing resources, that would take gearing to an unacceptable level. At the time of the last share issue Takare promised not to raise more equity for two years. He said the group was looking at fixing interest rates on its debt.

COMMENT

Takare's impressive growth continues, and there is no reason to doubt that it can take advantage of the opportunities its market offers. The community care reforms may cause some short term confusion, but should strengthen its hand. The only question is of funding the expansion, though even this should become less of a problem as the base gets larger. Taking capitalised interest into account, interest cover is slim, and there is every chance of a rights issue once the moratorium runs out in September. Even so, Takare has produced good earnings growth even with share issues, reflected in a prospective p/e of up to 17 on forecasts of about Pounds 14m pre-tax.

Takare GB United Kingdom, EC P805 Nursing and Personal Care Facilities FIN Annual report CMMT Comment & Analysis P805 The Financial Times London Page 27 473
UK Company News: Ransomes in the black with Pounds 900,000 Publication 930316FT Processed by FT 930316 By CATHERINE MILTON

BETTER GRASS growing conditions helped Ransomes, the grass cutting machinery maker, return to profitability in 1992.

The group, however, remained highly geared.

Pre-tax profits amounted to Pounds 900,000 and replaced losses of Pounds 4.6m on turnover 6.7 per cent higher at Pounds 156.6m (Pounds 146.7m).

Aggregate turnover at the America and commercial divisions rose to Pounds 112.7m (Pounds 110.7m) and gave an aggregate operating profit ahead 64 per cent, from Pounds 4.2m to Pounds 6.9m.

The consumer division increased turnover by 22 per cent to Pounds 43.9m (Pounds 36m) giving an operating profit of Pounds 2.7m (Pounds 600,000).

Tax more than doubled from Pounds 600,000 to Pounds 1.3m - an effective charge of 48 per cent of profits before the exceptional item - largely arising out of unrelieved overseas losses.

The charge include a Pounds 200,000 write back of advance corporation tax.

Currency movements contributed to a rise in gearing from 175 per cent to about 250 per cent.

The debts arise mainly from the 1989 takeover of Cushman in the US and other acquisitions.

Losses per share worked through at to 9p, down from 17.3p last time.

A Pounds 1.8m (Pounds 1.5m) exceptional charge was provided for the write down of assets on the transfer of the Brouwer operation from Canada to the US.

One analyst said: 'The company will not be able to trade out of its current difficulties.' Ransomes pointed out, however, that its principal bankers and institutional lenders continued to be supportive.

Ransomes GB United Kingdom, EC P3523 Farm Machinery and Equipment P3524 Lawn and Garden Equipment FIN Annual report P3523 P3524 The Financial Times London Page 27 291
UK Company News: Tough US trading leaves JIB at Pounds 18.2m Publication 930316FT Processed by FT 930316 By RICHARD LAPPER

TOUGH trading conditions in the United States insurance market and international reinsurance markets depressed pre-tax profits at JIB Group, the insurance broker, to Pounds 18.2m in 1992, compared with Pounds 20.1m.

Lower interest rates also affected the result to leave earnings per share down 26 per cent, from 13.6p to 10.1p.

A final dividend of 5p is proposed, making a total for the year of 7.5p. Last year there was a single final of 5p.

'In difficult markets and difficult times we have not done too badly,' said Mr Nick Cosh, finance director of the company, which is a subsidiary of Jardine Matheson Holdings.

Turnover increased to Pounds 175.9m (Pounds 168.9m). There was a lower contribution from the US of Pounds 79.5m (Pounds 80.6m), offset by increases in the UK and Ireland to Pounds 71.7m (Pounds 66.8m) and Asia Pacific to Pounds 24.8m (Pounds 21.5m).

Administrative expenses rose to Pounds 176.3m (Pounds 165.2m), partly because of a number of one-off costs.

The closure of the Philadelphia and New York offices cost Pounds 1.5m.

Although the dollar strengthened towards the end of the year, foreign exchange losses earlier in 1992 cost another Pounds 1m.

Income from associated undertakings rose to Pounds 2.26m (Pounds 416,000), and interest payable fell to Pounds 3m (Pounds 4.5m).

JIB Group GB United Kingdom, EC P63 Insurance Carriers FIN Annual report P63 The Financial Times London Page 27 251
UK Company News: The Telegraph recommends purchase of Southam stake Publication 930316FT Processed by FT 930316 By MAGGIE URRY

THE TELEGRAPH, the newspaper group 68 per cent-owned by Mr Conrad Black's Hollinger Group, has written to shareholders giving details of the proposed Pounds 72.3m purchase of a stake in Southam, the heavily-indebted and loss-making Canadian newspaper group, from Hollinger.

The deal is subject to approval of shareholders other than Hollinger, a Canadian holding company, at a special meeting on March 30. The shares fell 3p to 330p.

The Telegraph's independent directors, advised by NM Rothschild, the merchant bank which handled The Telegraph's flotation last summer, are recommending the deal. Shareholders with 8.3 per cent of the group's equity, more than a quarter of the non-Hollinger shares, have agreed to vote in favour.

In the circular shareholders were told that the deal would dilute earnings in the short term, although not significantly, and that The Telegraph would not receive dividends from its investment 'until towards the end of 1994'. It expects to equity account the stake, which will be held through a joint company owned 50:50 with Hollinger.

The independent directors said that the investment in Southam represented 'a unique opportunity'. Mr Joe Cooke, managing director of The Telegraph, said it would be able to influence Southam through three directors nominated by Hollinger and The Telegraph.

He said Southam would benefit from recovery in the Canadian economy, from improving its marketing and cutting overmanning - with advice from The Telegraph - and could sell its non-newspaper divisions.

Hollinger agreed to buy the 22.5 per cent stake in Southam on November 8 last year at a cost of CDollars 258.6m (Pounds 145.2m), or CDollars 18.10 per share, a 15 per cent premium to the then market price. The deal was completed on January 8. The Telegraph will buy half that stake paying the same price as Hollinger did, although the Southam share price has since fallen to CDollars 13.50.

Hollinger Group Southam Inc GB United Kingdom, EC CA Canada P2711 Newspapers COMP Shareholding P2711 The Financial Times London Page 27 348
UK Company News: Wiltshire cuts loss to Pounds 979,000 Publication 930316FT Processed by FT 930316

Wiltshire Brewery, the USM-traded brewer and distributor in which the UB Group of India late last year gained management control, yesterday reported a reduced annual deficit.

On turnover at Pounds 2.47m for the the 12 months to November 30 (Pounds 2.5m for 14 months), losses before tax were Pounds 979,000 (Pounds 1.39m), struck after exceptional charges of Pounds 297,000 (Pounds 460,000). Losses per share were 8.58p (15.93p).

At the operating level, however, the company returned to the black with profits of Pounds 38,000 (losses of Pounds 207,000).

The figures did not reflect December's Pounds 6.9m refinancing and purchase of 37 pubs. Mr Vijay Mallya, chairman, said that gearing had dropped from 354 per cent to 102 per cent on a pro-forma basis.

Mr Mallya attributed the improvement at the operating level to the conversion of loss-making houses into tenancies, thereby reducing overheads and generating rental income. Some 83 per cent of the estate is now tenanted. However, the company still has a bad debt problem.

The company plans to change its name to United Breweries.

Wiltshire Brewery GB United Kingdom, EC P2082 Malt Beverages FIN Annual report P2082 The Financial Times London Page 26 209
UK Company News: Watmoughs rises 51% to Pounds 12m and wins magazine contract Publication 930316FT Processed by FT 930316 By PAUL TAYLOR

WATMOUGHS (Holdings), the Bradford-based printer, yesterday announced a 51 per cent increase in 1992 full year profits and said it detected a 'slight improvement' in the UK newspaper colour supplement and magazine markets.

At the same time Mr Patrick Walker, chief executive, revealed that the group had won the contract to print the News of the World's Sunday colour supplement, Britain's biggest circulation magazine with a weekly print run of 5.2m copies.

Mr Walker said News International had signed a letter of intent for the group to begin printing the supplement in April next year, when the present contract with a German printer expires.

Watmoughs has yet to decide on whether to buy a new press to service the contract.

Pre-tax profits for 1992 increased to Pounds 12.2m (Pounds 8.1m) on turnover which rose to Pounds 118.9m (Pounds 107.4m) despite difficult trading conditions, industry excess capacity and pressure on margins.

After adjusting for the Pounds 22.3m rights issue early last year, earnings increased to 26p (20.6p). A recommended final dividend of 8.8p makes an 11.5p (10.5p) total.

The profit improvement reflected the recovery from a temporary downturn experienced in the 1991 second quarter, coupled with lower interest charges of Pounds 456,000 (Pounds 2.54m) following the receipt of the proceeds of the rights issue and lower interest rates.

Mr Walker said the group had managed to increase its share of the market for high quality long run colour supplements, magazines, mail order catalogues and retail brochures.

Export sales from the UK continued to grow reaching Pounds 5.86m (Pounds 3.75m) last year. Supported by its strong cash flow the group has been investing heavily in new technology and expanding its presence in continental Europe.

Capital expenditure last year totalled Pounds 59.3m including a substantial investment on new presses in the UK and Pounds 31.6m on the group's new gravure plant in Madrid which begins printing next month.

The group ended the year with net borrowings of Pounds 26m and gearing of 29 per cent (30 per cent).

COMMENT

Watmoughs has been investing heavily in its future. In the three years to December 1993 it will have spent Pounds 58m on capital investment in the UK and Pounds 46m in Spain and Hungary. The Madrid plant will begin with three titles, the group's recently acquired Hungarian subsidiary, Revai,is already contributing profits and, helped by a weak pound, the group is winning business back from the Continent. Meanwhile in the UK it has won new orders for substantial retail catalogues and says it detects a upturn in the newspaper supplement and magazine markets. But even without a recovery, profits should grow to about Pounds 14.2m this year producing earnings of some 30p per share. The stock has been climbing since last summer and, after gaining another 15p to reach a new high of 620p yesterday, is trading on a lofty prospective p/e of 20.7.

Watmoughs Holdings GB United Kingdom, EC P2759 Commercial Printing, NEC FIN Annual report CMMT Comment & Analysis P2759 The Financial Times London Page 26 526
UK Company News: DAP gives lift to Wassall Publication 930316FT Processed by FT 930316 By ROLAND RUDD

WASSALL, the mini-conglomerate run by former Hanson executives, reported a 73 per cent increase in pre-tax profits for the year to December 31 after a first full 12 month contribution from DAP, a US supplier of DIY products.

Profits rose from Pounds 10.3m to Pounds 17.8m on increased sales of Pounds 251.1m (Pounds 165.2m).

DAP, which was acquired in August 1991, contributed Pounds 8.9m to operating profit of Pounds 20.6m. Margins increased from 5 to 8 per cent, just below the group's average of 8.2.

The US company's diverse product range was rationalised, leading to the elimination of 500 stock-keeping units, accounting for Dollars 10m (Pounds 7m) of sales. This was more than recouped by aggressive marketing of DAP's more profitable products.

The number of plants is being slimmed down from 9 to 7, which Wassall expects to lead to more opportunities to increase margins.

With the conglomerate's other businesses reporting a 17 per cent increase in operating profits from Pounds 10m to Pounds 11.7m, Mr Chris Miller, chief executive, believes he is under no pressure to make another takeover.

However, he said: 'People invest in us to do deals and we are already looking at various opportunities.'

In the light of its failed bid for Evode, the chemicals and plastic group, Mr Miller said: 'We have learnt the lessons that there will always be a big risk of a white knight when targeting a good company.'

Laporte, the chemicals group, won the battle for Evode earlier this year, easily outbidding Wassall with a recommended Pounds 129.4m bid. Wassall covered the costs of its bid by selling its 3.5 per cent stake in Evode for Pounds 1m.

Consumer products, which includes DAP, reported operating profits of Pounds 10.5m (Pounds 3.99m); Closures, the bottle top maker, made Pounds 9.3m (Pounds 8m), and industrial and commercial activities turned in Pounds 900,000 (Pounds 800,000).

Earnings per share increased to 10p (8.7p). The final dividend rises to 1.7p making an increased total of 2.5p (2p).

COMMENT

Good companies at rock-bottom prices are hard to find, which is why some conglomerates may turn out to be bigger sellers than buyers this year. Not so Wassall. After failing to win its hotly contested bid for Evode, it is back on the takeover trail. The next target is more likely to be private than publicly quoted. This is partly because Wassall does not want to find itself in a bidding war and partly because private companies like doing business with people who have cash. With interest rates at record lows on both sides of the Atlantic there are not many arguments in favour of keeping Pounds 31m in the bank. With forecast earnings of Pounds 25.5m the shares are on a prospective multiple of 20.7. As long as it can find another acquisition which can repeat DAP's success, its high rating continues to be justified.

Wassall GB United Kingdom, EC P3161 Luggage P25 Furniture and Fixtures P5661 Shoe Stores FIN Annual report CMMT Comment & Analysis P3161 P25 P5661 The Financial Times London Page 26 525
UK Company News: Aminex/Tuskar Publication 930316FT Processed by FT 930316

Aminex has increased its offer for Tuskar Resources to 3 new shares for every 11 Tuskar. This represents an increase of 50 per cent on the original bid, made on February 15.

Aminex Tuskar Resources IE Ireland, EC P1382 Oil and Gas Exploration Services COMP Company News P1382 The Financial Times London Page 26 64
UK Company News: Abbott Mead slips 6% to Pounds 4.7m Publication 930316FT Processed by FT 930316 By GARY MEAD, Marketing Correspondent

ABBOTT MEAD VICKERS, the advertising group, yesterday exceeded analysts' expectations by turning in pre-tax profits 6 per cent lower at Pounds 4.72m for the year to December 31, on turnover up 5.6 per cent at Pounds 167.8m.

Operating profits were up by 5 per cent at Pounds 4.45m (Pounds 4.24m), and a recommended final dividend of 6.3p makes a total of 9.3p (8.4p), payable from earnings of 18.71p (22.09p) per share.

Operating margins were down slightly at 15.5 per cent (16.6 per cent). The group ended the year with no debts, and net assets of Pounds 10.1m.

The advertising agencies within the group gained Pounds 50m in new business through 1992, including significant accounts such as Seat, Adidas, Gillette and Cellnet.

The group said that three small companies which the group started in 1992, in sales promotions and investor relations, would be in profit this year, and that its purchase of some of Clarke Hooper Communications - which went into receivership in late 1992 - was already showing profits.

Staff levels reached 391 (352) last year, but income per employee levels were almost stable, at Pounds 73,701 for 1992, against Pounds 74,691 in 1991.

Abbott Mead Vickers GB United Kingdom, EC P7311 Advertising Agencies FIN Annual report P7311 The Financial Times London Page 26 235
UK Company News: Price rises in pipeline as Rugby edges up to Pounds 57.6m Publication 930316FT Processed by FT 930316 By ANDREW TAYLOR, Construction Correspondent

BUILDING MATERIAL price increases are starting to be forced through by producers according to Rugby Group, which supplies cement, joinery, steel and glass to the UK, European and US construction industries.

Rugby's share price rose by 6 per cent yesterday, from 222p to 236p, after pre-tax profits edged ahead from Pounds 57.3m to Pounds 57.6m over 1992 despite deep recession in the UK construction industry.

Mr Peter Carr, managing director, said that there were clear indications that material producers believed the time was right to try to recover lost margins by pushing up prices.

Increases announced at the beginning of this year of up to 13 per cent by British Steel and 8 per cent by Pilkington, the UK glass manufacturer, so far had held firm, he said.

'The closure of large manufacturing capacity means that supply and demand is coming back into line. With the prospect of revival in the housing market there appears to be a concerted attempt among manufacturers to make price rises stick.'

Foreign manufacturers suffering from sterling's devaluation were in no position to undercut price moves by British companies. In the case of glass, continental European manufacturers had followed Pilkington's lead and raised their own prices by a similar amount according to Mr Carr.

He said that steel, glass, plasterboard, timber and other product price price rises could increase UK building material bills by up to 6 per cent this year. This could be damaging for contractors and sub-contractors which had taken on fixed-price construction contracts at little or no profit margin.

Rugby, Britain's third largest cement manufacturer with about 20 per cent of the market, needs to buy steel, glass and timber for its constructional steel, steel reinforcement and joinery businesses. Cement prices, unlike those for other building materials, have seen small rises during recession but have not been increased this year.

A 15 per cent fall in UK trading profits to Pounds 29.4m (Pounds 34.8m) was offset by a 41 per cent increase in overseas profits from Pounds 16.6m to Pounds 23.4m. International profits were helped by the devaluation of sterling.

A 7 per cent increase in Australian dollar profits, for example, became a 20 per cent gain in sterling at year-end exchange rates.

UK cement profits fell 12 per cent to Pounds 16.8m following a 5 per fall in volume sales. Rugby said that it expected sales to decline by a similar amount in the current year.

Interest received rose from Pounds 4.43m to Pounds 4.82m and helped maintain earnings per share at 13.1p. An unchanged final dividend of 3.6p holds the total for the year at 6.45p.

COMMENT

Currency translations had a mixed effect on Rugby's results, enhancing the sterling profits of overseas operations but depressing by Pounds 17m the value of cash reserves which during the year fell from Pounds 24m to Pounds 12m. Devaluation will reduce the amount of interest receivable in the current year offsetting further trading improvements in Australia and the US. As a result profits seem likely to show little change. Rugby is a well managed group, with a strong balance sheet and adequate dividend cover, which has shown itself capable of funding necessary capital expenditure out of cashflow. A prospective p/e of 18 on maintained earnings, however, suggests that these virtues have been recognised in the share price.

Rugby Group GB United Kingdom, EC P2431 Millwork P3241 Cement, Hydraulic P3441 Fabricated Structural Metal FIN Annual report CMMT Comment & Analysis P2431 P3241 P3441 The Financial Times London Page 26 609
UK Company News: IMI suffers 7% fall to Pounds 68m Publication 930316FT Processed by FT 930316 By PAUL CHEESERIGHT, Midlands Correspondent

IMI, the international engineering group, held the decline in its profits before tax for the 1992 year to 7 per cent.

The pre-tax outcome of Pounds 68m compared with Pounds 73.2m last time. Earnings were 13.6p (15p) and the total dividend is maintained for the third year running at 10p via a final of 5.8p.

The stock market viewed the figures benignly enough to push the shares up 11p to 270p, checking the decline of last week when the shares dipped some 6 per cent.

Turnover advanced from Pounds 968m to Pounds 1.01bn, producing operating profits down on margin pressure to Pounds 75.6m (Pounds 78.1m). Interest payments increased from Pounds 5.8m to Pounds 8.4m, reflecting both an increase in gearing over the year to 26 per cent (22 per cent) and, more significantly, foreign exchange variations towards the end of the year.

The group is now nearing the end of recession-induced rationalisation. 'Major job losses: we think that is now behind us in 1992,' said Mr Gary Allen, chief executive, noting that the net loss of jobs during 1992 was 1,100, taking the total payroll at the end of the year to 17,500.

'The high level of capital spending we have undertaken in recent years puts us in a good position to recover quickly in any general upturn in activity,' said Sir Eric Pountain, chairman.

In the last financial year, IMI spent Pounds 54m on fixed capital investments and Pounds 20m on acquisitions. Over the three years of recession its capital expenditure - Pounds 160m - has been running at 1.5 times the rate of depreciation and its acquisition spending has reached Pounds 120m.

Of the main operating divisions, drinks dispense and fluid power were the strongest, underpinning operating profits. Earnings were lower in the fluid power and special engineering divisions, the last containing the troublesome titanium operations which continued to lose money.

COMMENT

Given a flat UK economy, divining IMI's immediate future is the art of balancing the brightening US economic prospect against the darkening continental European market. The group has helped itself to the extent that it has now, after heavy investment, sorted out its copper tube operations and is gaining market share. Titanium should stop losing money this year as the market firms, but fluid power remains a worry in Europe and the best year for selling building products in Germany has passed. Small wonder it is looking for expansion in the Far East. Still, drinks dispense looks strong and recent capital investment will flow through to the bottom line this year making 1993 pre-tax profits of Pounds 75m look feasible. That would produce earnings per share of 15.5p, giving the shares a prospective p/e of 17.4, high enough until the European clouds lighten.

IMI GB United Kingdom, EC P6719 Holding Companies, NEC P34 Fabricated Metal Products P508 Machinery, Equipment, and Supplies FIN Annual report CMMT Comment & Analysis P6719 P34 P508 The Financial Times London Page 26 512
UK Company News: Delta hit by US cable problems Publication 930316FT Processed by FT 930316 By JANE FULLER

WITHDRAWAL from an Australian business and continuing problems in US cables further undermined profitability at Delta, the electrical engineering group, last year.

Pre-tax profit for 1992 fell 14 per cent to Pounds 55m (Pounds 64m) on turnover of Pounds 785.9m (Pounds 774m). This followed about Pounds 3m of rationalisation costs at Surprenant, a US cables company badly affected by defence cuts, and a dent in profits of more than Pounds 6m in Australia.

Mr Robert Easton, chief executive, said disposals and closures in Australia accounted for 80 per cent of the Pounds 8.2m profit fall in the industrial services division, which made Pounds 12.8m pre-interest on Pounds 160.1m (Pounds 191m) sales.

Losses in North America were the main factor behind a 33 per cent decline in profits in the cables division to Pounds 8.68m (Pounds 13.1m) on Pounds 263.8m (Pounds 279.4m) sales. The impact of severe competition in the UK was offset by exports.

The biggest profit earner was the engineering division, including plumbing products and control equipment. It rose to a record Pounds 22.2m (Pounds 21.3m) on Pounds 320.1m (Pounds 295.1m) turnover, thanks to continuing growth in continental Europe. However, continental demand slowed in the second half.

In circuit protection, profit recovered to Pounds 17.1m (Pounds 13.6m) on Pounds 132.7m (Pounds 110.8m) sales. New products, particularly a circuit breaker for industrial use, had improved market share.

The results included a Pounds 1.69m profit on a business disposal and a Pounds 2.71m currency gain on an investment related to an aborted US acquisition. Mr Easton said Delta backed out of the purchase, worth about Dollars 200m (Pounds 140m), because of a last-minute problem arising from the due diligence exercise.

It would have been debt financed, taking gearing to between 50 per cent and 60 per cent, as the group retains its aversion to equity issues.

Year-end gearing rose from 13 per cent to 18 per cent, on net assets of Pounds 322.2m. The main purchase was the outstanding 36 per cent stake in Delta Crompton Cable for Pounds 37m from BTR.

Earnings per share slipped from 27p to 23p. The proposed final dividend is held at 9.8p to give an unchanged total of 14p.

COMMENT

Delta faces another year of swings and roundabouts as recession in continental markets is expected to halt the record run in engineering and offset any gains from recovery in the UK and US. The pound's devaluation should help exports from the UK as well as providing gains in translation this year. Restructuring costs should also be lower this year. The balance sheet is comfortable and an acquisition would certainly liven up views on the company, which has come to be seen as solid and unexciting. A pre-tax profit forecast of Pounds 57m gives a prospective p/e of nearly 18 times after yesterday's 9p rise in the share price to 444p. This looks about right, bearing in mind the continental impediment to a proper recovery in group profits.

Delta GB United Kingdom, EC P3399 Primary Metal Products, NEC P3452 Bolts, Nuts, Rivets, and Washers FIN Annual report CMMT Comment & Analysis P3399 P3452 The Financial Times London Page 26 541
UK Company News: Acquisitions help boost BPP to Pounds 7m Publication 930316FT Processed by FT 930316 By ANDREW BOLGER

A DROP in spending on language training by large international companies restricted growth in 1992 at BPP Holdings, the education and training group.

However, pre-tax profits still increased from Pounds 6.39m to Pounds 7.08m thanks to a full-year contribution from acquisitions during 1991. Sales rose from Pounds 42.4m to Pounds 48.7m.

Linguarama, the language training subsidiary, encountered increasingly difficult trading conditions. An exceptional charge of Pounds 650,000 covered redundancies and the closure of language schools in Japan and France.

Mr Richard Price, chairman, said this reorganisation would result in a more competitive business comprising 34 schools in 10 countries, although trading was likely to remain difficult in Japan and continental Europe.

Operating profits from language training were Pounds 857,000 (Pounds 1.16m) on turnover of Pounds 17.4m (Pounds 18.3m). A breakdown of profits and turnover showed publishing at Pounds 3.29m (Pounds 1.95m) on Pounds 14.3m (Pounds 9.53m), professional training at Pounds 2.47m (Pounds 1.88m) on Pounds 12.6m (Pounds 10.1m) and academic education at Pounds 306,000 (Pounds 484,000) on Pounds 4.36m (Pounds 4.42m).

Net cash at the year-end was Pounds 10.2m (Pounds 6.7m). In spite of considering a number of candidates, BPP made no acquisitions in 1992.

Earnings per share fell from 17.3p to 16p, thanks mainly to an increased tax charge of Pounds 2.67m (Pounds 2.09m). The group said that given the cash-generative quality of the business, it had decided to increase the final dividend to 5.3p, giving a total for the year of 8p (6.9p).

BPP Holdings GB United Kingdom, EC P824 Vocational Schools FIN Annual report P824 The Financial Times London Page 26 283
UK Company News: Amersham expands in the US via Dollars 69m buy Publication 930316FT Processed by FT 930316 By CLIVE COOKSON, Science Editor

AMERSHAM International, the UK health science group, is to acquire United States Biochemical, a privately-owned supplier of reagents to the biotechnology and pharmaceutical industries, for up to Dollars 69m (Pounds 48m) in shares and cash.

Amersham will pay Dollars 52m immediately to the group of investors headed by Mr Thomas Mann who are selling USB. Further payments up to Dollars 17m will follow over the next three years, depending on sales of USB products.

USB - founded 20 years ago in Cleveland - is known particularly for making enzymes that genetic researchers use to determine DNA sequences. It is expected to make pre-tax profits of Dollars 3.6m in the year to April 30, on sales of Dollars 36m.

'This represents a strategic step forward for our life science business,' said Mr Bill Castell, Amersham chief executive. 'Joining with USB will give us a leading position in both radioactive and non-radioactive sequencing and will provide critical mass in the vital American marketplace.'

In 1990 Amersham bought the US-based Medi-Physics business for Dollars 46m and sold its clinical reagents business to Kodak for Pounds 84m.

Amersham International United States Biochemical GB United Kingdom, EC US United States of America P2819 Industrial Inorganic Chemicals, NEC P283 Drugs P3841 Surgical and Medical Instruments COMP Acquisition P2819 P283 P3841 The Financial Times London Page 26 243
Waiting for the griffin to pull its weight: HSBC's results since acquiring Midland Bank last year Publication 930316FT Processed by FT 930316 By JOHN GAPPER

A sculpture of two intertwined brass coils rising from a solid base sits in Midland Bank's head office in London. Called 'Union', it was given by Sir William Purves, chairman of HSBC Holdings, after it acquired Midland last July. 'They're obviously going to screw us into the ground,' said one Midland director on seeing it.

As HSBC yesterday announced the first results for the new bank, the mood was less nervous. The first months of a merger that created the world's 15th largest bank have demonstrated some of its benefits. An example is the mixture of four styles of signs in Midland branches. The backing of capital from HSBC, parent of Hong Kong & Shanghai Banking Corporation, has allowed it to spend Pounds 18m this year unifying the style.

Even such small amounts were hard to spare at Midland in the late 1980s. Still stricken by its 1981 purchase of Crocker National Bank in California, Midland incurred a Pounds 261m pre-tax loss in 1989 and only made Pounds 11m the next year. 'None of what we're doing now costs a lot a money, but we did not have any before,' says Mr Brian Pearse, Midland's chief executive.

The prospect of HSBC dominating Midland has been lessened by the mixing of executives. Mr Richard Delbridge, Midland's finance director, has become HSBC group finance director. Mr Pearse professes to be content. 'I have found my masters very receptive. I'd be very surprised if they went against anything I thought was right.'

Mr John Bond, HSBC's group chief executive, says Midland will maintain its style. 'We do not go around the world trying to export our culture. We have a few central principles, but each bank has its way of doing things,' he says. He lists the principles as strong capital and liquidity, a stress on information technology, and rigorous control of costs.

Yet the continuation of such harmony depends on Midland performing a lot better than in the past. It now makes up 40 per cent of HSBC's assets, but contributed only Pounds 184m to the group's Pounds 1.2bn attributable profit. The Hong Kong shareholders who needed persuading last year that Midland was worth Pounds 4bn will watch for an improvement.

The imbalance between HSBC's Asia Pacific operations and Midland is striking. Mr Robert Law, an analyst at Lehman Brothers, estimates that HSBC's Asian operations earned a 50 per cent pre-tax return on capital last year. Midland would need to make Pounds 800m even to achieve 20 per cent, which is well above its highest ever pre-tax profit of Pounds 693m in 1988.

It has moved to remove overlap, spending Pounds 122m on restructuring in the second half of 1992. The London-based treasury and capital markets operations have been merged and moved to a new building.

Cost savings and the increased size have produced benefits: the combined treasury operation costs 20 per cent less, and has raised turnover 17 per cent. Mr Pearse says corporate customers are now attracted to the merged Midland/HSBC because of its size, its greater capital strength and its resources in operations such as trade finance.

Outside large corporate business, the merger remains unproven. HSBC's hardest task is to improve profits in the personal and small corporate business carried out through branches. Unlike Lloyds Bank, which made a counter-bid for Midland before withdrawing, HSBC cannot reap cost savings through eliminating overlap in branch networks.

HSBC's most likely edge over other clearing banks is in technology. UK banks have allowed operations to develop incompatible systems: Midland's treasury operations alone had 22 systems.

The bank has also used 'front office' technology for such things as credit scoring more extensively than British UK banks. Loans to small businesses are cleared by local managers within Midland; at Marine Midland such loans are assessed at a lending centre in New York state.

How Midland will be affected by HSBC's preference for using technology to automate credit decisions while controlling staff costs is unknown. Midland cost-to-income ratio is 68.6 per cent compared with 56.6 per cent for HSBC as a whole. But Mr Pearse says the network of 1,800 branches is the right size, and the primary task is to pass more income through it.

The suggestion that costs could be saved by automating small business lending gets a sceptical response from Mr Pearse.

'It may be a sign of my old age, but I would have to be convinced about that. I still believe that the capital structure of most small businesses in this country mean you have to be involved face-to-face with them,' he says.

Mr Bond puts a different stress on the balance of cost and income, given sluggish loan demand in recession-hit OECD countries.

'The only thing you really have under your control at the moment is costs,' he says. He emphasises HSBC's preference for 'very short lines of communication', without thick layers of head office middle management.

For the moment, the different traditions are a matter for debate rather than argument. Mr Bond is still assessing the acquisition after coming to London in January, and Mr Purves does not arrive until the autumn.

But Mr Pearse's approach will soon have to bear fruit in transformed profits; HSBC's patience may otherwise wear uncomfortably thin.

Midland Bank HSBC Holdings GB United Kingdom, EC P602 Commercial Banks COMP Acquisition MGMT Management P602 The Financial Times London Page 23 921
Barings chairman quits after policy dispute Publication 930316FT Processed by FT 930316 By RICHARD WATERS

MR Christopher Heath, the man who built Baring Securities into one of the UK's most successful securities houses in the late 1980s, yesterday resigned along with a large part of his senior management team after a policy dispute over the company's future.

Mr Heath and his team are believed to have pushed for Barings to expand its securities and derivatives business in a move that could have led the group to sell a stake to another bank.

Mr Andrew Tuckey, deputy chairman, said no specific proposals had been put to the board, but added that 'none of these initiatives have any appeal to us, because we have neither the capital nor the inclination' to expand the business.

The move comes six months after Barings, one of the UK's oldest merchant banking groups, announced that its securities arm had plunged into loss in the first half of 1992, cutting group profits by more than a half to Pounds 11.8m. More than 100 jobs were shed at that stage, and yesterday's departures raised the prospect of further cuts in the securities arm and its 80-strong derivatives unit.

Mr Tuckey said the parting had been amicable and that Mr Heath, the company's chairman and once the UK's highest-paid director, would remain as a consultant to the group.

Others directors to depart were Mr Ian Martin, head of derivatives, and Mr Andrew Baylis, head of European operations, while Mr Jim Reed, head of New York, and Ms Vanessa Gibson have also left the Barings Securities Board.

One of the executives who stepped down said that discussions over the future of the company had come to a head last weekend: 'One route would have been more exciting and expansionist - and, yes, might have required more capital and an extra partner. The other was more consolidating. At the end of the day, it's very difficult to back something you don't agree with.'

Two other directors, Mr Andrew Fraser and Mr Diarmaid Kelly, have been made deputy chairmen. Mr Peter Norris, put in by Barings as chief operating officer last autumn, takes over as chief executive.

Baring Securities GB United Kingdom, EC P6211 Security Brokers and Dealers COMP Company News PEOP Personnel News P6211 The Financial Times London Page 23 389
Government admits defeat over contracting-out case Publication 930316FT Processed by FT 930316 By JOHN WILLMAN, Public Policy Editor

THE government has conceded defeat in a court case over the contracting out of public services after legal advice that EC employment legislation which protects the jobs, terms and conditions of staff transferred to the private sector applies more widely than previously thought.

The decision comes after a union campaign against contracting out of public services which has in the past led to job cuts and inferior employment terms.

The decision to concede defeat has angered contractors which believe that the government will find further progress on contracting out stalled.

'The government has effectively thrown in the towel,' said Mr Cliff Davis-Coleman of Clause 26, a contractors' pressure group.

Mr Davis-Coleman said this could mean that Tupe, the Transfer of Undertakings (Protection of Employment) regulations 1981, the legislation which implements EC laws in the UK, will be applied to all public-sector contracts. 'It makes a nonsense of the government's entire market-testing and privatisation programme,' he added.

Ministers believe the decision could make it harder for existing staff to bid for their work in future programmes of contracting-out. If the jobs, pay and conditions of staff are protected, there would be no need to invite an in-house bid from the staff.

The court case was over a decision by South Glamorgan health authority to contract out the canteens of three hospitals in Cardiff. The health service union Cohse applied for a judicial review over the failure of the authority to apply Tupe.

Due to be heard next week, the case has been halted on the instructions of the Welsh Office, after legal advice that the Tupe regulations applied to the contract. Government lawyers are negotiating with Cohse over costs and other details.

Ministers accept most contracting out of public services will be covered by the legislation after attempts to have the EC exclude contracting out foundered.

Mr Padraig Flynn, EC commissioner for social affairs, said on BBC-TV's On The Record there was no wish to amend the Acquired Rights Directive: 'It must be remembered that we are concerned about the protection of workers and their rights.'

Confusion over the scope of the legislation has delayed the government's market-testing programme under which almost Pounds 1.5bn of Civil Service work has been put out to tender.

Notices of dismissal to 180 employees of the computing and financial services arm of four London boroughs were rescinded yesterday after the company accepted that the Tupe regulations applied.

GB United Kingdom, EC P9199 General Government, NEC P9441 Administration of Social and Manpower Programs PEOP Labour GOVT Government News P9199 P9441 The Financial Times London Page 22 447
Yeltsin fears communist revival: President's aides signal plan for plebiscite under international supervision Publication 930316FT Processed by FT 930316 By JOHN LLOYD

MR BORIS YELTSIN, the Russian president, yesterday accused his parliamentary opponents of seeking to restore communist rule. His aides signalled that he planned to secure popular support in a plebiscite under international supervision.

In a statement issued by Mr Vyacheslav Kostikov, his press secretary, Mr Yeltsin accused the Congress of Peoples' Deputies of denying the people the right to a referendum and of 'violating the constitution'. Its decisions during last week's four-day session were 'an attempt to . . . return the levers of government to the communist nomenklatura'.

Mr Yeltsin would give his response in the next few days, Mr Kostikov said, adding in a later interview: 'I think that Boris Nikolayevich (the president) intends to act as decisively as he showed himself capable of doing in the fatal days of August 1991' - a reference to the failed communist putsch against president Mikhail Gorbachev.

The latest clashes between the president and his hardline opponents in parliament came as western leaders repeated their support for Mr Yeltsin.

German chancellor Helmut Kohl warned that not only Mr Yeltsin's domestic reforms but also the entire process of peaceful international co-operation was threatened by the political backlash in Moscow.

A similar message is expected to be delivered by French president Francois Mitterrand when he arrives in Moscow on an official visit today.

The expressions of international concern follow a weekend meeting of officials from the Group of Seven leading industrialised nations in Hong Kong. However, beyond considering more effective ways of targeting their aid for Russia, there is little sign that western governments are any closer to agreeing increased financial assistance.

Mr Yeltsin's tactic now appears to consist of proceeding to a plebiscite on who governs the country. Mr Yegor Gaidar, former prime minister and now chief economic adviser to the president, said yesterday that Mr Yeltsin could constitutionally hold a plebiscite under the existing law on referendums.

Mr Gaidar said 'probably it would be a good idea to hold such a plebiscite involving international observers.'

Mr Yeltsin's opponents, by contrast, insist that Congress is the constitutional authority. Mr Konstantin Zlobin, the spokesman for the Russian parliament, yesterday rejected the president's allegations and said that the 'democratic gains' made by the Congress last week 'significantly reduce the possibilities of legal cover for the destructive activities' of Mr Yeltsin's advisers.

To broaden his political support ahead of a plebiscite, Mr Yeltsin may also consider appointing some centrist figures to his cabinet, according to Mr Gaidar.

Compromise fades away, Page 2 Kohl speaks out, Page 2

RU Russia, East Europe P9611 Administration of General Economic Programs P91 Executive, Legislative and General Government GOVT Government News P9611 P91 The Financial Times London Page 22 470
Amato says Italy faces north-south break-up Publication 930316FT Processed by FT 930316 By DAVID MARSH, European Editor

MR GIULIANO AMATO, the Italian prime minister, yesterday said his country faced the risk of a break-up between north and south unless it made urgent changes to its electoral laws.

Mr Amato coupled his warning of possible secession with a strong call for the establishment of a new political class to steer the country out of its crisis over corruption.

Speaking at the London School of Economics, Mr Amato said revelations of widespread illicit financing in business and politics gave Italy no choice but to 'renew its ruling class'.

If elections were held now under the proportional electoral system, dissatisfaction with established parties would lead to 'the inevitable success of extremist parties'.

The right wing Lombard League, which favours detaching the prosperous north from the poor south, would probably be the strongest party in parliament, Mr Amato said.

'If we can change the system towards the smallest amount of proportional representation that Italians are capable of introducing, then the danger (of fragmentation) would be smaller,' Mr Amato said.

Italians vote in a national referendum on April 18 on a series of constitutional issues, including reforming the electoral system. The outcome is expected to increase pressure for an early general election.

Mr Amato, who has already announced his prospective retirement from politics, spelt out his vision of a 'peaceful revolution' throughout Italy's ruling elite.

His eight-month-old coalition has been at the centre of the political storm. Several ministers have been among more than 1,000 politicians, businessmen and officials implicated in the scandals.

As the scale of corruption unearthed during the last few weeks has increased, expectations of the future make-up of the Italian political system had 'changed totally', Mr Amato said.

The aim in coming months was to 'get new people out of the professions - ordinary citizens - into parliament, because the old people will not be acceptable any more,' he said.

Speaking of the Christian Democrat and Socialist parties at the centre of scandals, Mr Amato said: 'I don't expect these parties to be players in the new game. I don't expect these men (the parties' present leaders) to be leading figures in the new system.'

Mr Renato Altissimo, leader of the small Liberal party, yesterday became the third head of an Italian political party to be caught up in the net of investigations.

Magistrates said he had been told he was under investigation for alleged corruption.

He was one of at least seven new parliamentarians served with such notices yesterday.

Italy's corruption scandal, Pages 4-5

IT Italy, EC P9611 Administration of General Economic Programs P8651 Political Organizations GOVT Government News GOVT Legal issues P9611 P8651 The Financial Times London Page 22 459
The Lex Column: British Airways Publication 930316FT Processed by FT 930316

BA is delighted that the first Dollars 300m stage of its investment in USAir has been temporarily approved. In truth, the US transportation secretary had no alternative under existing aviation agreements. The crucial question is: what follows?

Mr Federico Pena will press hard for a revised bilateral aviation agreement with the UK government giving US carriers greater access to the European market. BA will then face a tricky calculation whether to cede some Heathrow slots in the hope of receiving US regulatory approval for the next two phases of its link up with USAir. These stages would bring the real operational rewards.

But such considerations may be academic. In its current mood, the US Congress would bristle at approving any agreement allowing BA fuller access to the domestic market no matter what Mr Pena may agree.

British Airways GB United Kingdom, EC P4512 Air Transportation, Scheduled CMMT Comment & Analysis P4512 The Financial Times London Page 22 168
The Lex Column: English China Clays Publication 930316FT Processed by FT 930316

Having abandoned its adventure in housebuilding, English China Clays now finds itself becalmed. Selling kaolin to paper makers will remain unrewarding until demand for the end product catches up with capacity. Given the cyclical downturn in Europe, that point may not be reached until well into 1994. Meanwhile, ECC is in no position to reverse the downward pressure on margins. The move into Pacific markets and an upswing in the US should offset the worst of the damage. The 1990 acquisition of Georgia Kaolin now looks well-timed. But without further steps in that direction, the growth prospects are far from obvious.

ECC could usefully raise as much as Pounds 150m by disposals from its land bank and redeploy the funds where growth prospects are better. Given the groggy UK housing market, though, it would not do to count on an early realisation. A debt-funded acquisition would be another way forward. Having replaced most of its auction-market preference shares with last year's rights issue, ECC's balance sheet is strong. The worry is that higher interest charges would eat into free cash flow. That might undermine the secure 5.8 per cent yield on which the shares now depend.

English China Clays GB United Kingdom, EC P32 Stone, Clay, and Glass Products CMMT Comment & Analysis P32 The Financial Times London Page 22 232
The Lex Column: Airtours/Owners Abroad Publication 930316FT Processed by FT 930316

The battle between Airtours and Owners has become an unedifying dogfight. Thomas Cook's last-minute move to buy 8.4 per cent of Owners' shares in the market at 152 1/2 p apiece may have tilted the balance in the defence's favour. If so, Cook could then proceed with its tender offer for a further 12.5 per cent of Owners' shares at 150p enabling the two parties to consummate their strategic alliance.

This may serve Cook's interests well. It is not clear if it is as good for all Owners' shareholders. The guiding principle of the Takeover Code suggests that an offeror should treat all the offeree's shareholders equally. Cook has not made a bid and therefore has no such obligation. Nevertheless, it has cynically tried to curb Owners' shareholders' freedom of choice. Although not prepared to bid, Cook is prepared to scupper a rival offer by dislodging some loose institutional holders of Owners' shares. It would then be able to deter further bids with its large blocking stake. Wavering shareholders should reject such tactics. The Airtours' offer still looks the best alternative.

Sadly, this tale confirms how some bids have degenerated into back-room deals between companies and fund managers. Small shareholders might be forgiven for feeling cheated.

Airtours Thomas Cook and Sons Owners Abroad Group GB United Kingdom, EC P4724 Travel Agencies P4725 Tour Operators CMMT Comment & Analysis P4724 P4725 The Financial Times London Page 22 247
The Lex Column: Profits begin at home Publication 930316FT Processed by FT 930316

HSBC Holdings is clearly pleased with the diversification represented by last year's acquisition of Midland Bank. But the 68 per cent increase to Pounds 1.01bn in the Hongkong Bank's attributable profits shows where the group's most dynamic growth still lies. Even without the currency conversion factor and the Pounds 270m gain from the sale of the Cathay Pacific stake, income in the Asia-Pacific region continues strong. Midland is unlikely ever to match the Hongkong Bank's astonishing return on average shareholders' funds of over 30 per cent.

The danger remains of over-estimating the bank's resilience if the Asian boom falters. At some stage, though probably not before 1994, rising US interest rates and narrower margins on Hong Kong business could produce a noticeable dent, especially if the political situation remains tense. Midland's profits should rise as provisions fall. HSBC's computer systems could bring remarkable efficiency gains, but they will take years to flow through and the bulk of the cost-cutting in Midland is complete.

HSBC may thus not yet have found the complete answer to its diversification dilemma. It is still heavily dependent on its volatile traditional market. The eventual answer might yet be to float all or part of the Hong Kong operation locally. The bank says nothing could be further from its mind when it is making so much money there. Indeed, but the chance could vanish for good if political trouble really strikes.

HSBC Holdings GB United Kingdom, EC P6719 Holding Companies, NEC P602 Commercial Banks CMMT Comment & Analysis P6719 P602 The Financial Times London Page 22 273
Prepared for a purge Publication 930316FT Processed by FT 930316 By WILLIAM DAWKINS

French opposition leaders will be tempted to celebrate their likely election victory at the end of this month by purging state industry of the company chairmen most loyal to the Socialists.

It might seem curious that this is possible in a modern and competitive European economy, yet there is pressure on both sides of the right-wing RPR-UDF alliance to put supporters of the new government at the head of state companies before they are privatised.

There is also the urge for revenge. The conservatives have not forgotten the wholesale management changes staged by the Socialists during the nationalisations after their 1981 election victory. Heads have rolled, though not so many, after each change of power since then.

The prospect is said to have brought decision-making in some state groups to a near halt, for fear that a new chairman might follow a different strategy.

Foreign partners are worried, notably Volvo, which is keeping its fingers crossed that there will no change in the management of Renault, the government-owned carmaker in which it holds a 20 per cent stake.

Mr Edouard Balladur, tipped as a leading prime ministerial candidate for the conservative RPR, has told his team that he does not want a witch-hunt. He is sensitive to the fact that French state industry's foreign competitors suffer no such political risk.

Whether moderates like him get their way depends on the election results. Even though the outcome is not clear, the vulnerable company chiefs are:

Loik Le Floch-Prigent, chairman of Elf Aquitaine, the oil group which is France's largest company in terms of turnover.

The right is thought unlikely to want to leave a close friend of President Francois Mitterrand in charge of this strategically important company. The previous conservative government kicked Mr Le Floch- Prigent out of his last state industry job, as chairman of Rhone-Poulenc in 1986 and might drop him again, to the applause of his enemies at the influential Treasury, but possibly to the alarm of his private sector shareholders.

Jean-Yves Haberer, chairman of Credit Lyonnais, one of Europe's largest banks.

He is blamed for the bank's high-risk expansion and its exposure to embarrassing problems such as Hollywood's MGM studios, which have frustrated right-wing hopes of a quick privatisation for Credit Lyonnais. Mr Haberer's close links with Mr Pierre Beregovoy, the prime minister, count against him, though he also has highly placed friends on the right.

Mr Rene Thomas, chairman of Banque Nationale de Paris.

His management is respected, but Mr Thomas, 64, is due to retire at the end of the year, offering the right a convenient opportunity to hand this important job to a supporter.

Shadows are hanging over the futures of Mr Gilles Menage, a former chief of staff to Mr Mitterrand, who now runs Electricite de France, and over Mr Jean Peyrelevade, chairman of UAP, the biggest state insurer.

Also at risk are Mr Alain Gomez, the Socialist appointee who has run Thomson, the troubled electronics group for the past 11 years, making him the longest-surviving chairman of a state-owned group, and Mr Yves Lyon-Caen, chairman of the Credit National bank and a close colleague of former Socialist prime minister Mr Michel Rocard.

FR France, EC P2911 Petroleum Refining P6011 Federal Reserve Banks P8651 Political Organizations PEOP Personnel News CMMT Comment & Analysis Loik Le Floch Prigent, Chairman Elf Aquitaine (France) Jean Yves Haberer, Chairman Credit Lyonnais (France) Thomas, R Banque Nationale de Paris (France) P2911 P6011 P8651 The Financial Times London Page 21 594
Leading Article: German pain postponed Publication 930316FT Processed by FT 930316

WITH BROAD smiles and much fraternal back-slapping, Germany's political establishment has demonstrated that its famed consensual model lives on. Many observers feared that Chancellor Helmut Kohl's solidarity talks were an excuse for inaction in addressing Germany's mounting fiscal problems. But this weekend's package confounds them by raising income tax 7.5 per cent, through a reintroduced solidarity surcharge from January 1 1995, and by increasing public borrowing for east Germany by some DM60bn. Yet these actions do not solve Germany's problem. For while the agreement brings some clarity to the fiscal muddle, it does so mainly by illuminating the fact that Germany's structural budget deficit is here to stay.

The solidarity pact must be judged first in political terms. The minds of both main political parties have been concentrated by the large falls in their combined vote in the recent Hesse municipal elections. On these terms, the cross-party deal, finalised in 2 1/2 days of fraught negotiations, was an admirable success. Mutual compromises have enabled the government to squeeze from western Germany's federal and state budgets the extra DM110bn it needed to finance transfers to the eastern states in 1995. It also rebalances the division of tax revenues between the federal and lander governments.

Economic fudge

Yet it is unlikely that the Bundesbank's medium-term fiscal fears will be allayed by Mr Kohl's agreement, even if the bank is convinced that falling output and moderating western wage demands justify faster rate cuts now and is therefore prepared to bow to increased political pressure to accelerate the slow easing of short-term interest rates that has been under way since last September. Good politics the pact may be, but in economic terms it bears all the hallmarks of an unsatisfactory and misconceived fudge.

Judged as a solution to the problem of sharing the burden of transfers to the east, it is unbalanced, vague and almost certainly insufficient. Almost all of the extra financing will come from higher taxes and increased borrowing, while Germany's fat welfare budget will remain untouched. Half of the modest DM9.2bn in spending cuts comes from concealed tax increases achieved by cutting tax allowances; another DM1.8bn is dubiously expected to come from reduced welfare fraud; and at least DM1bn in spending cuts will come from sources as yet unspecified.

The package is expected to reduce the federal budget deficit to DM63.8bn in 1995, DM7.8bn higher than previously forecast. But the projections are based on the overly optimistic assumption that output will grow by 3 per cent in both 1994 and 1995, despite the higher taxes and long-term interest rates that the package is likely to inflict on west German industry. If the economy recovers at a more realistic 2 per cent a year, then the total 1995 deficit, forecast at 4 1/2 per cent of GDP, looks decidedly structural.

Deeper problem

The structural deficit is evidence of a deeper problem. Domestic demand in the east now exceeds eastern production by 87 per cent. But rather than trying to close that gap, the pact merely finds a less-than-satisfactory means of financing it. Productivity in east German manufacturing industry is 70 per cent below that in west Germany and engineering wages already stand at 70 per cent of those in the west. But rather than trying to close the gap between eastern wage costs and productivity, the pact merely finds ways to continue subsidising east Germany's 'core' but unprofitable industries.

The sad fact is that German-style consensus, while adept at tinkering with the symptoms, is still failing to solve the underlying problem that is undermining the east German economy - the rapid pace of convergence of wages between the eastern and western lander. And while the government celebrates its success, IG Metall, the engineering union, continues to plan a series of strikes next month in support of a 26 per cent pay rise for those of its eastern members who still have a job. Unless this process is arrested, and the threatened strikes are averted, then Germany's solidarity pact could quickly unravel.

DE Germany, EC P9311 Finance, Taxation, and Monetary Policy CMMT Comment & Analysis P9311 The Financial Times London Page 21 699
Leading Article: How not to run the BBC Publication 930316FT Processed by FT 930316

THIS WEEK, the governors of the BBC meet in an atmosphere of crisis. Following revelations about the unseemly pay contract of the corporation's director-general, there are widespread calls for resignations and dismissals. The board is badly split.

Deja vu. In 1987, one director-general was dismissed in controversial circumstances. Four years later, a second's desire for a further term of office divided the board and resulted in a two-year fudge in which the BBC was hobbled with a director-general and a director-general-in-waiting, Mr John Birt. It is now Mr Birt's future which sets governor against governor.

Given that the single most important managerial task of the governors is to select and then monitor the progress of the director-general, such an accident-prone system cannot be said to be working well.

The problem is that the governors do not know what they are there for. A miscellany of academics, artists, Whitehall types and business executives, the law says they are responsible for ensuring that parliament's wishes, enshrined in the corporation's constitution, are fulfilled. In its clearest sense, their mission is to regulate, standing between politicians and broadcasters. In practice, governors make their influence felt by controlling the most senior appointments and discussing any issue which takes their fancy.

Blurred boundaries

This has meant that the governors do not do much well. Their ability to supervise standards of taste has been judged so defective that other bodies have entered the vacuum. Individual governors openly differ on whether they should exercise the right to view programmes before transmission.

On the managerial front, they have tried to work more closely with management, holding more joint meetings. It is not surprising that in this atmosphere of blurred boundaries, nobody has been precise about who should do what. Do all top appointments have to be by open competition? Some think so, but many have not been. Who determines the terms and conditions of senior managers? The whole board? A remuneration sub-committee? Whoever the chairman happens to invite in for a drink?

It is against this background that the affair of Mr Birt's contract must be judged. That he made a serious misjudgment in believing he could be the corporation's first freelance director-general is beyond doubt. To the ordinary citizen, these accountancy fictions, with their unidentified secretaries and glamorous-sounding expense accounts, are a fiddle.

Not indispensable

The mitigating circumstances are that his tax arrangements were legal, approved by the Inland Revenue and accepted by his employer. Mr Birt has apologised, put his arrangements in order and should now be allowed to get on with the job. He is not indispensable to the future of the BBC, but it is primarily his vision which informs the case the BBC has made for a new royal charter. Most who wish to see him ousted would prefer a more comfortable notion of the BBC's future, but this is fantasy. The real question about Mr Birt's vision is whether it is radical enough.

The other reputation on the line is that of Mr Marmaduke Hussey, chairman of the board of governors. Mr Hussey's achievement has been to find Mr Birt and to back him, against much mutiny, in the pursuit of a more efficient and accountable BBC. He has helped put the BBC in a stronger political position than it has enjoyed for decades.

But Mr Hussey is a schemer, a Fleet Street alley cat. He has alternately charmed, bullied and excluded governors unsympathetic to his purpose. This is not a style appropriate to the reformed mode of governance the BBC itself envisaged in its recent response to the government's green paper. That document calls for less meddling, clear structures, defined reporting lines, consistently monitored standards and effective mechanisms for complaint.

Mr Hussey has performed a public service in kicking the BBC towards a more realistic view of its future. The government should now ask him to prepare, in an orderly fashion, to hand over to a successor.

British Broadcasting Corp GB United Kingdom, EC P4833 Television Broadcasting Stations CMMT Comment & Analysis P4833 The Financial Times London Page 21 691
Assault on the state's frontiers: The privatisation of French industry will accelerate sharply if, as expected, the conservative parties form the next government Publication 930316FT Processed by FT 930316 By WILLIAM DAWKINS

The French state's industrial frontiers have slowly, sometimes painfully, receded over the past decade as economic deregulation has started to take root in what has long been one of Europe's most interventionist countries.

The conservative team expected to succeed the Socialist government after the general election at the end of this month is preparing to surrender yet more of the state's role as a manager and owner of industry. Just how far the alliance of the Gaullist RPR and centre-right UDF is prepared to let go will set the tone for French industry pol-icy for the life of the next government.

Conservative advisers are putting the finishing touches to an ambitious privatisation programme to raise up to FFr200bn (Pounds 25.1bn) over four to five years according to the most optimistic opposition plans. It will mark a sharp acceleration of the partial privatisations under the Socialists, worth FFr16bn last year, and aims to complete the privatisations started by the conservatives during their last government from 1986 to 1988, when FFr120bn worth of state companies were sold.

All state-owned banks, insurers and industrial companies will be on the block, promises the opposition. The candidates for the first round of sales include Elf Aquitaine, the oil group; Rhone-Poulenc, the chemicals company; and Banque Nationale de Paris, the second-largest state-owned bank. All three of these groups are already partly privatised and performing well. One of the three big state insurers, UAP, AGF or GAN, is also expected in the initial batch of sales.

The government will choose the rest of the disposals from the uncompleted privatisations on its 1986 hit list of 65 companies, of which 29 were sold. The list includes stars such as Pechiney in aluminium and packaging, which is already quoted on the stock market. But there are already some industrial headaches like Bull, the loss-making computer group which last week announced a FFr4.7bn loss for 1992, and Thomson, the struggling electronics company.

There will also, say opposition advisers, be one important new candidate not on the 1986 list: Renault, the carmaker, which three years ago started on the road to privatisation by exchanging minority stakes with Volvo, the Swedish automotive group. The privatisation of Renault would be an important step in the decline of interventionism because the group has been used as a crucible of industrial and social policy experiments by successive postwar governments.

'We have no doubt that Renault will come on to the market, perhaps after the first wave of new privatisations. It is highly symbolic and also happens to be one of the state's best assets,' says Mr Willy Douin, president of CS First Boston France, the Paris branch of the Swiss merchant bank.

The actual candidates will be published in a privatisation law, to be presented to the national assembly in the spring. Partial privatisations of state utilities such as France Telecom and Electricite de France are also under study, although these are thought to be a few years off.

The threat of recession facing the French economy means this round of privatisations will be more difficult at first than the last round of wholesale sell-offs. This took place over an economically euphoric 14 months, ended by the 1987 stock market crash and the conservatives' political defeat.

Yet the signs are that the new sell-off candidates could pass more completely into the private sector than the last lot. In many cases, the former right-wing government managed to keep some control of privatised companies by selling stakes in them to so-called noyaux durs or hard cores of companies owned by Gaullist RPR party support-ers.

The Socialists tried to dismantle these groups by enlarging the ownership of state companies, although they maintain the principle that some kind of national control is needed. The Socialist-appointed chairman of Renault, Mr Louis Schweitzer, for example, argues that his company must remain majority French-controlled, if privatised.

But this time, it will be harder to press-gang noyaux durs into action. Corporate France has less spare cash in these tough economic times than in the late 1980s. The growth in foreign investment in French companies means their boards now have to concentrate more on increasing earnings than keeping on the right side of their political friends. Some noyaux durs members received a poor return on their investments in the last round of privatisations - both in profits and power - and so are cautious over being drawn in again.

Big French corporate investors in new privatisations, therefore, will be motivated more by industrial, rather than political logic. One example is Alcatel Alsthom, the privatised telecommunications and engineering group, whose chairman, Mr Pierre Suard, is close to the RPR. He says he is interested in taking a stake in France Telecom, the state telecommunications operator.

Other privatisation candidates might use this opportunity to speed up their strategy of seeking share exchanges with foreign partners, like BNP and its existing German partner, Dresdner Bank.

Despite the problems, few doubt that the privatisations will get off the ground, cautiously at first because of the fragility of the Paris stock market's recovery since the beginning of the year, but faster as the economy picks up.

The programme is likely to be successful for two reasons. First, the political will is there. The new government is likely to get a record majority in the national assembly and should be able to impose its policies with ease.

Second, there is more than enough pent-up demand. France's top industrial companies are far less represented on the Paris stock exchange than their competitors are on their domestic markets. The capitalisation of the Paris stock market is equivalent to just 30 per cent of gross domestic product, less than half the 65 per cent of US GDP represented by US stock markets, estimates CS First Boston.

On the political front, Mr Edouard Balladur, who as former finance minister masterminded the last round of right - wing privatis-ations and might be the next prime minister, believes the process is essential.

He argues that it will make it easier for former state sector companies to raise capital independently of the cash-strapped state; that it will encourage more efficient management; and that the proceeds from the programme will help the government fund the tax cuts needed to stimulate France's flagging economy.

Privatisation is prominent on the joint RPR-UDF election manifesto, where it commands more of a consensus among an otherwise divided coalition than other economic matters, such as monetary policy. This is no surprise, for Mr Balladur's sell-offs were one of the few real successes of the last conservative government.

On the demand side, the opposition has several reasons to be optimistic. First there is the FFr1,300bn of mainly private investors' savings now sitting in lightly taxed Sicav money market funds.

A lot of that cash is likely to be seeking a new home in future, because the ceiling below which Sicav disposals are tax-free was reduced in January from FFr317,000 to FFr158,000 a year. For the first time in three years, the total invested in Sicavs has started to fall, also helped by the launch of a tax-exempt equity savings plan. A fall in interest rates, plus the extra tax breaks for long-term private investments promised by the opposition, would push more of French households' savings into equities.

Foreign institutional investors will be another big source of demand, if they continue to increase their exposure to the French stock market.

According to the Banque de France, 28 per cent of French publicly quoted shares are now in foreign hands, up from 21 per cent two years ago. If foreign investors believe, as most analysts in Paris do, that the opposition will be able to hold the line on the 'franc fort' policy, they will have a clear interest in buying more shares in well-managed privatisations on the brink of recovery.

What is unclear is just how much the new government will be able to curb the temptation to meddle in its newly privatised companies. 'French industry is still run by members of a small elite who move in and out of industry and pol-itics,' explains a US securities analyst.

He adds: 'They need to purge the system, because it is so alien to what their competitors are doing, but they are not ready to let go.'

Here the opposition is divided both on generational lines and between the free-market UDF and the more interventionist RPR. Some of the older leaders still believe in a degree of state intervention, while young reformers, among them Mr Alain Madelin, former UDF industry minister, are strong upholders of free markets.

An important test of whether or not the urge to intervene has receded will be just how many Socialist-appointed public sector company chairman the conservatives decide to throw out after the election. At least half a dozen bosses of state companies will be particularly anxious about the first few weeks of the next French government.

---------------------------------------------------------------------- French privatisation: stepping up sales ---------------------------------------------------------------------- Stock performance of French privatised companies ---------------------------------------------------------------------- Date of Share price at Current Absolute privatisation privatisation Share price performance per cent ---------------------------------------------------------------------- Saint Gobain Nov 1986 310 541 74.5 Alcatel-Alsthom April 1987 323 656 103.1 Havas May 1987 187 471 151.9 Societe Generale Jun 1987 407 654 60.7 Suez Sept/Nov 1987 261 305 16.9 Paris CAC Generale Nov 1986 383.6 528.5 37.8 ---------------------------------------------------------------------- Source: CS First Boston, France ---------------------------------------------------------------------- Some of the leading companies proposed for privatisation by 1986-88 right wing government but not sold off yet ---------------------------------------------------------------------- * Bull * Pechiney * Rhone-Poulenc * Elf Aquitaine * Thomson * L'Union des assurances de Paris * Group des Assurances generales de France * Banque nationale de Paris * Credit Lyonnais ----------------------------------------------------------------------

FR France, EC P9611 Administration of General Economic Programs P9121 Legislative Bodies CMMT Comment & Analysis P9611 P9121 The Financial Times London Page 21 1669
Observer: Funereal humour Publication 930316FT Processed by FT 930316

Nice to see that company undertakers are developing a sense of humour at last.

An advert in the Financial Times seeking potential buyers of Aprilwood Furnishings, makers of three-piece suites, says that it is 'an increasingly well known brand, supported by excessive advertising during the last 12 months . . .'

Aprilwood Furnishings GB United Kingdom, EC P25 Furniture and Fixtures CMMT Comment & Analysis P25 The Financial Times London Page 21 81
Observer: Liter-ally Publication 930316FT Processed by FT 930316

Not content with one begging letter, the Turks have just come up with five in the hope of persuading the rest of the former Soviet Union's quintet of Turkic states to join Azerbaijan and Turkmenistan in abandoning Cyrillic notation in favour of Roman script.

Turkey's decision to increase the alphabet by the five new letters is a historic gesture. It is the first such change since the western reforms of Mustafa Kemal Ataturk in 1928 when the Turks themselves adopted the Roman script in place of the Arabic used under the Ottomans.

The additions, agreed after a four-day conference in Ankara, represent sounds already voiced in the dialect of Turkish used in the republics.

Besides an additional e (written as a backwards E), the letters are a w, an x, a q, and an n with the reverse of a French circumflex over the top.

As an added incentive to join the alphabetical alliance, Turkey is offering the republics printing machinery and substantial technical assistance.

TR Turkey, Middle East P99 Nonclassifiable Establishments CMMT Comment & Analysis P99 The Financial Times London Page 21 190
Observer: Twin feats Publication 930316FT Processed by FT 930316

Not just one, but two feathers in its cap can be claimed by the outplacement consultancy, Coutts, a subsidiary of the DC Gardner Group.

The first - helping to find new jobs for about 1,400 ex-employees of the Bank of Credit and Commerce International - is a fair feat in itself, considering that no less than former CIA director Robert Gates publicly rechristened BCCI 'the Bank of Crooks and Criminals International'.

But the second achievement is surely greater. According to DC Gardner's chairman, Sir Kit McMahon, Coutts has been paid in full for the work by Abu Dhabi's Sheikh Zayed bin Sultan al-Nahyan - which is more than can be claimed by most of BCCI's disgruntled creditors.

Coutts Career Consultants GB United Kingdom, EC P7361 Employment Agencies CMMT Comment & Analysis P7361 The Financial Times London Page 21 147
Observer: Charity-speak Publication 930316FT Processed by FT 930316

Some pretty improbable-sounding charities - such as the Solicitors Benevolent Association and the Girls Friendly Society - figure among those in The Henderson Top 1000 charities guide which has just been published by Hemmington Scott.

But there is no disguising the fact that it is increasingly difficult to differentiate big business from charity when it comes to jargon. One contributor to the guide enthuses about improvements in 'donor base technology' but warns that 'cold donor acquisition rates' are slipping below the threshold of commercial viability on first mailing.

Not sure what it means, but no doubt it is all in a good cause.

GB United Kingdom, EC P2731 Book Publishing P673 Trusts TECH Products CMMT Comment & Analysis P2731 P673 The Financial Times London Page 21 133
Observer: Name game Publication 930316FT Processed by FT 930316

One of the puzzles about HSBC Holdings is why no high-powered image consultant has come up with a better handle. It's a funny name for one of the world's top 10 banks. Cast an eye down the list of the world's blue-chip lenders and one has to look a long way before finding a more forgettable name than HSBC Holdings. Apparently, there was once talk about rechristening Honkers and Shankers something rather airy-fairy like Trade Winds or Mercator. But that idea was soon shot down as a bit too racy.

If the powers that be can't think up anything else, and given that two of HSBC's main banks are called Midland, it might even be worth renaming the group Midland Bank International . . . after a decent interval, of course.

HSBC Holdings GB United Kingdom, EC P602 Commercial Banks CMMT Comment & Analysis P602 The Financial Times London Page 21 160
Observer: Blooming Publication 930316FT Processed by FT 930316

It's Budget day and the 'green shoots' are sprouting. Blackpool Pleasure Beach, home of the world's tallest roller coaster, reports that last weekend saw a record number of visitors through its turnstiles. Meanwhile, a colleague has received an unsolicited letter from North London estate agents Benham & Reeves saying they have lots of buyers for his house . . .

GB United Kingdom, EC P7999 Amusement and Recreation, NEC P6531 Real Estate Agents and Managers CMMT Comment & Analysis P7999 P6531 The Financial Times London Page 21 94
Observer: Kerry's turn to roll Publication 930316FT Processed by FT 930316

Who stands to lose the most from Australia's rejection of the conservative opposition parties in Saturday's general election? The answer is probably not John Hewson, the luckless conservative leader, but Kerry Packer, Australia's richest gambler.

In the past, Packer has made money under both Labor and conservative governments. But the latest election result means there will be no change in Australia's banking and media laws. That is bad news for Packer, who owns 10 per cent of Westpac Banking Corporation, and has recently acquired 5 per cent of Fairfax - Conrad Black's Australian newspaper group.

Packer would like to bid for both groups, but is prevented by Labor legislation which limits him to 15 per cent of each. He could have a tilt at Fairfax if he sold the Channel Nine television operation, but that would mean giving up control of Australia's top-rated tv channel, which is also a big money-spinner.

However, Packer has been dealt worse hands before and come up trumps. He is still showing a profit on his Westpac punt, and the underlying profitability at Fairfax suggests he isn't going to lose a fortune there. Nevertheless, it would be surprising if Packer were content to remain a passive investor for long.

Although Westpac doesn't want Kerry on its board, perhaps Conrad Black should hedge his bets by inviting him to join his Fairfax board. Even Black might feel happier with Kerry on the inside.

Westpac Banking Corp John Fairfax Holdings AU Australia P2711 Newspapers P602 Commercial Banks CMMT Comment & Analysis PEOP Personnel News P2711 P602 The Financial Times London Page 21 276
Mr Major's talking head Publication 930316FT Processed by FT 930316 By JOE ROGALY

When Mr Norman Lamont rises to de-liver the Budget this afternoon, watch Mr John Major. You should be attentive to what will be one of the remarkable phenomena of the week. Observe: words will come out of the chancellor's mouth, but you will not see the prime minister's lips move. Mr Lamont's jaw will waggle up and down, but there will be no indication that Mr Major's hand is up the back of his jacket.

You may be forgiven for thinking that your eyes are deceiving you. The Budget will be read out as if by Charlie McCarthy, America's most famous wooden effigy; the ventriloquist will be Mr Edgar Bergen, aka John Major. Some chancellors - Lord Lawson springs to mind - never sat on their prime ministers' knees, although even in the latter's case there was always something he wanted in the Budget that Lady Thatcher didn't, and vice-versa. Some rely for their jobs, their reputations, their very political existence, on the whims of their immediate boss. In the present instance the dependence is two-way: Edgar Bergen desperately needs Charlie McCarthy to perform well; Charlie cannot perform without him.

Old hands will protest that 'it was ever thus'. Chancellors meet prime ministers once a week or so for 'bilaterals'. It is always important that the prime minister of the day concurs with the strategy for managing the economy put to her or him by the chancellor. It is therefore unfair to Mr Lamont to argue that he is mouthing Mr Major's policies.

Possibly. The truth is that there is something more important at stake this afternoon than whether this particular chancellor remains in office until this summer, next summer, or the one thereafter. Today's Budget is regarded by Downing Street as a part of the slow and necessarily painful process of putting Britain's administration back together again. It is intended to help reconstruct the authority that was shattered on Black Wednesday. For Mr Major and his chancellor have yet to rebuild the nation's confidence in their ability to do the jobs they are paid to do. If their remuneration was performance-related, and assessed according to public esteem, they would be living on social security.

The pair of them are in the same boat, up the same creek, searching for the same paddle. If, as many believe, the chancellor irretrievably lost his honour when he failed to resign on that fateful Wednesday, what of the prime minister? Both had defended Bri-tain's position in the exchange rate mechanism with equal fervour, Mr Major because he believed in it, Mr Lamont because he had to. Both had spoken of the irresponsibility of abandoning the fixed exchange rate, right up to the moment that sterling was ejected from the mechanism. Some of their ministerial colleagues believe that the chancellor should have offered himself as a sacrifice, thus deflecting criticism from Mr Major. We do not live in such heroic times.

The prime minister does of course have the authority to replace Mr Lamont, but he remains to be convinced that it would be politically profitable for him to do so. It is probable that the success or failure of the chancellor's current energetic efforts to win a sympathetic hearing will weigh at least as heavily for or against him as the actual contents of today's Budget. The prime minister can influence or control the fiscal stance. He can pull the strings on that. Image is another matter. Only the chancellor can turn himself into an effective persuader.

It is becoming fashionable for politicians to recognise that that is what they need to do. President Clinton, learning the lesson taught with such brilliance by President Reagan, is showing that he understands that direct communication with the electorate, always a necessary part of democratic government, is indispensable in the age of television. Mr Douglas Hurd, one of the British government's few skilled practitioners of electronic persuasion, spoke last Friday about a growing ten-sion between 'achievers and critics'.

The burden of the foreign secretary's remarks was that the critics, especially when they 'hunt as a pack', create 'stereotypes which can lead us astray from reality'. Mr Hurd is right. Britain's media gather as baying hounds upon this prey or that, nearly always collectively. The foreign secretary's remarks also suggest that doers are of greater importance than those who merely carp. As a former doer, but now one of the latter breed, I bow my head in acknowledgement - adding only that when achievers make a mess of things, we critics get inordinate enjoyment out of feeding on their flesh.

That is what has happened to the government. Its more sanguine ministers believe - hope - that the pack will start baying a different tune when economic recovery is seen to be under way. The little matter of the bill to ratify the Maastricht treaty must also be over and done with. As to that, the government's chief whip, Mr Richard Ryder, accepts that he cannot cobble together a majority unless Labour abstains. Procedural motions, and amendments for which Labour proposes to vote in favour, will be lost. But Labour needs to abstain on the big issues, in order to maintain its own unity.

You will see from this summary of its position to date that the government has positioned itself on a ladder of achievement, upon which it aims to climb away from the critics' jaws. The first step was last autumn's public spending statement. The second is this afternoon's Budget, the third the passage of the Maastricht bill. Economic recovery is the final leap.

It will not be so easy as that sounds. The autumn spending controls were relatively painless; it is the current search for long-term cuts that is truly difficult. The economic recovery will have to run long and strong before the fear of unemployment is eliminated from Conservative voters' minds. The Maastricht bill remains a gamble.

Tomorrow's verdict on the Budget, almost certainly favourable, will be premature. As the late Iain MacLeod used to say, you should not judge a Budget until the finance bill is published. That is about a month away. Meanwhile, to save himself, and his mentor, Charlie McCarthy will have to keep talking, swivelling his head round to whoever will catch his eye.

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy CMMT Comment & Analysis P9311 The Financial Times London Page 20 1078
Watching the whirlwind: The battle for a car executive Publication 930316FT Processed by FT 930316 By MARTIN DICKSON, CHRISTOPHER PARKES and DAVID WALLER

A bizarre tug of war between two of the world's leading automobile groups for the services of an idiosyncratic Spaniard who calls his staff 'warriors' appeared to have ended yesterday in victory for Germany's Volkswagen and defeat for General Motors of the US.

GM announced in Detroit yesterday afternoon that 52-year-old Mr J Ignacio Lopez de Arriortua, its colourful head of worldwide purchasing, had definitely quit - apparently to take up a contract of employment with Volkswagen - after five days of wavering between the two companies.

However, a bemused Mr Jack Smith, GM's chief executive, told a news conference, scheduled to announce that Mr Lopez was staying in Detroit, that 'it is not clear to me what his intentions are, or where he is at the present time.'

Volkswagen had spent weeks carefully wooing Mr Lopez, but GM fought a furious last ditch campaign to persuade him to stay, including an offer of promotion to executive vice president of GM and the presidency of its North American automotive operations.

But, despite the promotion and entreaties from tearful members of his purchasing team, Mr Lopez decided to leave.

Whatever the factors prompting the departure, such an intense battle over a man who just a year ago was unknown outside the automobile manufacturing world illustrates how VW and GM's North American operations share some serious problems in common, notably bloated cost structures.

Mr Lopez, who was head of parts purchasing for GM Europe, based in Russelsheim, West Germany, between 1988 and 1992, was a key member of the team which turned GM Europe from losses into one of the world's most profitable vehicle businesses - and a stark contrast to the company's core North American operations, which have lost Dollars 12bn over the past two years.

He radically altered GM's relations with its European suppliers and shifted a large quantity of work from high cost German parts companies to cheaper manufacturers in other parts of the region. GM ended up with one of the lowest cost bases of any European assembler.

In May last year Mr Smith, a former head of GM Europe, summoned Mr Lopez to Detroit to do the same in North America as part of a belated restructuring which also involves the closure of 21 plants and loss of at least 75,000 jobs over the next few years.

Mr Lopez set about the job with gusto. He infuriated some of GM's outside suppliers by insisting that they slash their prices by 20 per cent or more. He initiated a system where hit-squads, so-called Picos teams, went into parts factories inside and outside GM, looking for ways to improve production methods.

Critics argued that his cost-cutting demands could have endangered the quality of some GM parts, or discouraged suppliers from carrying out research and development with the company. But Mr Lopez and his supporters pointed out that he had been offering much longer-term contracts to those parts companies which could meet GM's quality, service and price specifications.

Whatever the truth, his campaign saved GM hundreds of millions of dollars and his presence in Detroit was one of the most powerful catalysts for change inside the slow-moving, bureaucratic company, sending a powerful signal to employees and suppliers alike that it was deadly serious about its restructuring.

With an engaging smile, and in broken but passionate English, he repeatedly warned the American motor industry that western industrial society risked defeat at the hands of the Japanese.

'We must transform the Western ability to create intelligent excuses into positive creativity,' he declared in a speech earlier this month, taking a swipe at suppliers who complained he was making impossible demands of them.

His personal idiosyncrasies have added to the impression of fundamental change. For example, one of his first actions on arrival in Detroit was to issue staff with a booklet describing his preferred 'warrior diet,' which eschewed 'poisonous' sugar and potatoes and encouraged the consumption of only fruit for breakfast.

However, the Lopez revolution is a long way from completion - he was planning more than 1,000 Picos workshops in suppliers' plants this year, and more than 1,300 in GM ones - and his departure for Volkswagen after only 10 months in the job will almost certainly slow the momentum of the company's reforms.

Volkswagen, for its part, is in urgent need of fundamental reform and Mr Ferdinand Piech, chief executive since the beginning of the year, is expected to announce Mr Lopez's appointment as part of a radical upheaval of senior personnel to be disclosed after today's supervisory board meeting.

Mr Piech already has two former, but more junior, GM managers on his staff at VW's Audi subsidiary. Mr Erich Schmitt, a one-time member of Mr Lopez's cost-cutting team, was recently appointed director in charge of buying, finance and organisation.

Mr Jurgen Gebhardt, Audi's new production director, was poached from Adam Opel, GM's German subsidiary, where he was plant manager at the low-cost showpiece works in Eisenach, eastern Germany. Opel has dented VW's self-esteem by stealing market leadership in the former GDR - even though the VW brand was recognised by more than 60 per cent of former east Germans before reunification, compared to less than 30 per cent for Opel.

VW is thought to have made an operating loss of DM1bn in its core VW division last year and is woefully inefficient compared to other European and Japanese volume manufacturing competitors.

While its rivals began rationalising more than a year ago, VW is only now taking the hard decisions which will enable the group to weather what Mr Piech last week termed the worst downturn in the German motor industry since 1945.

VW needs to drastically reduce its cost structures over the next 12 to 18 months. In part this could be achieved by reducing personnel - hard enough in Germany under any circumstances, even harder at VW, where the supervisory board is (unusually for Germany) dominated by union representatives and where 20 per cent of the shares are owned by state of Lower Saxony, currently governed by a Social Democratic/Green coalition.

VW has also begun to realise that it needs to reform its relationship with its suppliers. Audi's Mr Schmitt recently said the group had set the goal of reducing the prices of components purchased from outside suppliers by 25 to 30 per cent over the next four to five years.

Mr Lopez could, therefore be the change agent VW needs - although his mercurial, Hamlet-like behaviour over the past five days might make Mr Piech wonder just what kind of one-man whirlwind he is getting.

General Motors Corp Volkswagen DE Germany, EC US United States of America P3711 Motor Vehicles and Car Bodies COMP Company News PEOP Personnel News J Ignacio Lopez de Arriortua, Head of Worldwide Purchasing General Motors Corp P3711 The Financial Times London Page 20 1165
Letter: Not so much tropical rainforest Publication 930316FT Processed by FT 930316 From Prof GHILLEAN T PRANCE

Sir, I should like to correct the alarmingly optimistic figure for the area of this planet which is covered by tropical forest, given in your article, 'FAO cuts estimate of tropical forest loss' (March 9). This states that 37 per cent of the planet is covered in tropical forest.

It states correctly that, according to FAO figures, 1.75bn hectares of tropical forest remain; however, this is not 37 per cent of the planet. It is 3.4 per cent of the total area of the planet and 11.6 per cent of the total land surface of the planet.

More alarming for those of us trying to preserve the biodiversity of the species-rich tropical rainforest is that it has now been reduced to 0.83bn hectares, or only 5.5 per cent of the total land surface.

There is no room for complacency if we are to preserve this ecosystem which is so vital for the functioning of our planet.

Ghillean T Prance,

director,

Royal Botanic Gardens,

Kew, Richmond,

Surrey TW9 3AB

GB United Kingdom, EC P99 Nonclassifiable Establishments CMMT Comment & Analysis P99 The Financial Times London Page 20 202
Letter: Perfectly clear Publication 930316FT Processed by FT 930316 From Mr INNES HAMILTON

Sir, Your comment ('Major must persevere', March 10) that 'Paddy Ashdown wants his party to be noticed' and use of the word cynically were regrettable and unworthy.

The Liberal Democrats have made it perfectly clear that they will use every endeavour to obtain ratification of the Maastricht treaty. Equally that they will do all possible to ensure that the social chapter is included. Nothing could be clearer than those aims and I am sure they will vote accordingly. It is a pity that others are less clear and constructive.

Innes Hamilton,

Christchurch Road,

Virginia Water,

Surrey.

GB United Kingdom, EC P8651 Political Organizations P9721 International Affairs CMMT Comment & Analysis P8651 P9721 The Financial Times London Page 20 130
Letter: Only one justification for no tax increase Publication 930316FT Processed by FT 930316 From Prof DOUGLAS MCWILLIAMS

Sir, I hesitate to question Mr Samuel Brittan's analysis, though my hesitation is not increased by the fact that he can pray in support six of the government's allegedly wise men. The quality of an economic judgment seems to be inversely proportional to the number of economists putting it forward simultaneously - witness the 364 co-signatories of the 1981 letter to the Times or 4,000 ex-employees of the East German ministry of economics.

But Mr Brittan's argument that a tax increase should be delayed (Economic Viewpoint, February 25) appears to be based on an inconsistent theory of expectations formulation. If a tax increase is considered to be probable, in the real world most people will take this into account in their behaviour even before it is announced. So the case for delaying an inevitable tax increase is weak.

The only justification for Mr Lamont avoiding a rise in taxes in his Budget is that he may feel that taxes will not need to be raised at all. If he feels confident that Mr Portillo's review will deliver sizeable cuts in public spending, this would justify a neutral Budget, leaving the revised levels of public spending to be announced in November.

While the government continues to borrow Pounds 1bn a week, it remains subject to the moods of the financial markets. And these markets have tended not to give Mr Lamont the benefit of the doubt. Their confidence in UK economic prospects is only likely to revive when the chancellor puts forward a programme to eliminate public borrowing based on something more credible than Ms Rosy Scenario (who made an unwelcome reappearance in the Autumn Statement). Such a programme would improve the trade-off between interest rates and the exchange rate and create scope for further cuts in interest rates if the recovery fails to gain momentum.

Douglas McWilliams,

chief executive,

Centre for Economic

and Business Research,

18 Kent Terrace,

Regents Park, London NW1

GB United Kingdom, EC P99 Nonclassifiable Establishments CMMT Comment & Analysis P99 The Financial Times London Page 20 357
Letter: Ford chief spells out how UK government must aid industry Publication 930316FT Processed by FT 930316 From Mr IAN MCALLISTER

Sir, In your leader about manufacturing on March 8, you said that the answer to previous difficulties lies partly in government policies but also in the hands of industrialists. This is true, and for our part at Ford we have been working with some success to improve our basic design, engineering and assembly capabilities. Also, we have been investing in new products right through the recession. Our aim, along with many other manufacturers, is to provide more exciting, safer products, with higher quality and lower costs.

From the government, in the near term, we hope that in today's Budget there will be no measures that will stifle the first indications of recovery in car sales, and that revisions to company car tax will not result in tax bands that would continue to cause distortion of the market at threshold levels.

More fundamentally, we believe that the government should support industry through the provision of better scientific, technical and management education. Further, we consider that any education or training programme should recognise the importance of developing professional standards, at all levels of industry. Government should also assess the merits of establishing a new science and engineering college with the ambition to earn a reputation for excellence similar to that of universities such as MIT in the US.

The government can help industry by creating the right economic environment. This includes stability in policies, investing in the nation's infrastructure, the creation of a true common market in Europe, and a conclusion of the Uruguay Round.

With respect to investment from Japan, Britain should examine carefully whether it is likely to strengthen or weaken the base of vital research and engineering skills in this country. For example, Japanese cars produced in the UK, together with the components they contain, are largely designed and engineered at centres in Japan.

Finally, the powerful long-term causal links between manufacturing success and success in key service businesses should not be forgotten. The huge success of Japanese manufacturing exports of the last decade made possible the dramatic growth of Japanese banking around the world; not the other way around.

Ian G McAllister,

chairman and managing

director,

Ford Motor Company,

Brentwood, Essex CM13 3BW

GB United Kingdom, EC P99 Nonclassifiable Establishments CMMT Comment & Analysis P99 The Financial Times London Page 20 403
Letter: Economic reasoning is faulty Publication 930316FT Processed by FT 930316 From Mr ROBERT SOLOMON

Sir, Lester Thurow's Personal View (March 10) on the need for the expanding US economy to 'decouple' from its trade partners contains some remarkably faulty economic reasoning.

Ha argues that a surge in manufactured imports would create increased unemployment as the US 'locomotive' moves ahead faster than other countries. Yet that surge in imports would depend on a much larger surge of demand and gross domestic product in America.

Imports of manufacture constitute only 5 per cent of America's GDP. Thus to get Thurow's Dollars 45bn surge of such imports, GDP would have to move ahead by Dollars 900bn or 15 per cent. That would create many more new jobs than the Dollars 45bn of additional imports would displace.

This is rather obvious first-level economics, and it is surprising that the Dean of the Sloan School at MIT needs this lesson.

Robert Solomon,

The Brookings Institution,

1775 Massachusetts

Avenue, NW,

Washington DC 20036, US

US United States of America P99 Nonclassifiable Establishments CMMT Comment & Analysis P99 The Financial Times London Page 20 187
Letter: Reality of PowerGen pay talks Publication 930316FT Processed by FT 930316 From Mr TONY COOPER

Sir, The headline to your report on PowerGen's pay offer ('PowerGen grants pay deal of up to 5 per cent', March 12) talked the level of the settlement up to 5 per cent but, as was correctly reported in the latter part of the story, the reality is different. Such exaggeration damages the process of open and fair negotiation.

The offer which is now to be subject to a ballot of the trades unions' members in PowerGen is for a 2.5 per cent increase in basic salaries for all staff. A further one-off lump sum bonus in recognition of productivity improvements is attached to the offer. Both sides recognise the substantial nature of such 'improvements', which have come from staff reductions of about 1,000 in the last year and nearly 4,000 since privatisation.

Although the government does indeed still own 40 per cent of PowerGen it has maintained a consistent refusal to take an active role in the company's affairs (even when the coal crisis may have justified it). I have no hesitation in defending the freedom of both sides in the negotiations to reach an agreement tailored to PowerGen's circumstances.

Tony Cooper,

general secretary,

Electrical Power Engineers' Association,

Flaxman House,

Gogmore Lane,

Chertsey, Surrey KT16 9JS

PowerGen GB United Kingdom, EC P4911 Electric Services PEOP Labour CMMT Comment & Analysis P4911 The Financial Times London Page 20 244
Arts: Donizetti's 'Roberto Devereux' - Opera in Genoa Publication 930316FT Processed by FT 930316 By RICHARD FAIRMAN

The building of a new opera-house is such an expensive business and so fraught with potential problems that it is only the rash or the exceptionally well-funded who would be advised to contemplate it at all. In the last decade neither the Bastille in Paris nor the Muziektheater in Amsterdam met with an unqualified chorus of rapture.

The Teatro Carlo Felice in Genoa has won more harmonious applause. Strictly speaking, it is not a new building, as the shell of its predecessor remained after war damage in 1943. It has also taken the best part of 15 years to reach fruition even from the selection of the definitive project (the Royal Opera will know about this problem). But for an opera-house totally re-conceived and built afresh, amply spacious, lavishly appointed, it is difficult to think of a city luckier than Genoa.

As befits its original frontage, the interior of the theatre has kept in touch with classical features, albeit interpreted in a modern style. The auditorium (about 2,000 seats) is unlike any other in Italy, or anywhere else for that matter. The side walls are fashioned to resemble Venetian houses with their balconies forming the traditional side boxes, looking down on the stalls as though over a central piazza - a novel idea, which gives the theatre a thoroughly Italian atmosphere of its own.

All this, however, is a mere counterpoint to its triumphant main theme: the excellence of the acoustics. According to a recent opinion-poll the sound qualities of the new theatre have won almost unanimous approval, and I am not surprised. The voices project with remarkable clarity. At the performance of Donizetti's Roberto Devereux which I saw on Sunday each singer had only to step to the front of the stage to ensure an enormous vocal impact.

What with La Favorite in Cardiff and L'assedio di Calais at London's Guildhall School of Music in the last fortnight, it would seem that Donizetti's serious operas may be inviting re-appraisal ahead of his bicentenary in 1997. Roberto Devereux is one of the most red-blooded of all. To succeed, a performance needs to work up a real head of steam in the royal show-down that crowns Act 2 and that is what Jan Latham Koenig achieved here, conducting the very respectable Genovese orchestra.

With the exception of the main character of Elizabeth I - the Polish soprano Jolanta Omilian, not a great voice, but dramatic and strong, able to stamp her authority on the opera - the roles were cast with some of the best of the younger Italian singers. Vincenzo La Scola was the stylish tenor Earl of Essex; the baritone Roberto Frontali sang a well-focused, firm Duke of Nottingham. Best of all was Gloria Scalchi, who showed no sign of strain at all in tackling the high mezzo part of Sara: clearly a notable talent.

Audiences in Genoa are liable to express their displeasure at modern productions, so there was no suggestion of updating this piece of Tudor historical fiction to the era of Thatcherite domination or Italian political corruption scandals. The staging was grandly traditional, with luxurious drapes and tapestries providing opulent spectacle for its Palace of Westminster locale. On its own terms it all worked splendidly and was a first-rate advertisement for a company happily settled in its new home.

With four years to go, the Royal Opera in London might also want to think about extending its repertoire to more of Donizetti's historical operas. The addition of Roberto Devereux, arguably the most exciting musically of the three works, to its existing Anna Bolena and Maria Stuarda, would make a properly regal trilogy.

At the Teatro Carlo Felice, Genoa

IT Italy, EC P7922 Theatrical Producers and Services CMMT Comment & Analysis P7922 The Financial Times London Page 19 647
Arts: Peter Grimes - Opera in concert Publication 930316FT Processed by FT 930316 By MAX LOPPERT

The high point of Mstislav Rostropovich's current Britten Festival at the Barbican was intended to be the two concert performances of Peter Grimes. Up to a point, the intention was realised.

On Sunday, the excellence of the London Symphony Orchestra and Chorus was the ballast of the performance. Since the principal gain of such operas-in-concert is the host of opportunities offered for close-up examination of the score, the fine quality of the playing only enhanced admiration for the myriad fine detail of the music. A beautifully poised viola solo launching the Passacaglia offered a notable instance; so too the pithily characterful utterance of the Act 3 dance band, placed just close enough to allow the listener to note anew how subtly Britten worked its nippy pleasantries into the fabric of gathering dramatic tensions.

A front-rank cast had been engaged: again, the pleasures of witnessing its most assured members in action fed one's admiration for the phrases Britten wrote for their characters. A singer's aim on such occasions should be the nicely judged infusion of characterisation into the smooth, clear delivery of notes. Such sharp-profiled singer-actors as John Dobson (Boles), John Connell (Swallow), Anne Collins (Mrs Sedley), Menai Davies (Auntie) and the sparky Jason Howard (Keene) - all experienced in the Grimes productions of Glyndebourne, ENO or Covent Garden - hit home their points with vivid economy. It was good to hear Ryland Davies taking a character role, the Rector, with such elegance. Platform entrances and exits added to the concert-drama - not, though, the addled boo-hoo-ing of the female chorus-member filling in for the boy apprentice.

But the three principals, newcomers to their roles, revealed their inexperience in ways that sometimes rocked the concert-opera balance. Bryn Terfel's preening of his youthfully magnificent bass-baritone made only a superficial connection with Balstrode. Nancy Gustafson, dressed as a handsome West Coast belle with a glitter of diamonds in her hair, sang with a generalised warmth that too rarely found the centre of Ellen's precisely placed notes.

It can be no easy matter to undertake one's first Grimes in the city where Peter Pears and Jon Vickers have held sway. The Canadian Ben Heppner, a heroic singer of uncommon intelligence, sensitivity and bounteous vocal gifts, struggled with those portions of the vocal writing most closely linked with Pears's tenorial idiosyncrasies. He will surely find his way deeper into the role, and should be fervently encouraged to do so - but, let us hope, under a conductor less far removed from the opera's 'real world' than Rostropovich. To be brutally frank, it seemed to me that on this showing, and for all the conductor's generosity and musicianly enthusiasm, he hasn't a clue of how Peter Grimes actually goes.

Second Barbican Grimes concert tomorrow

GB United Kingdom, EC P7922 Theatrical Producers and Services CMMT Comment & Analysis P7922 The Financial Times London Page 19 493
Arts: Pop go the Sixties - William Packer both admires and questions the exhibition at the Barbican Art Gallery Publication 930316FT Processed by FT 930316 By WILLIAM PACKER

The first thing to say of this large exhibition of British art in the 1960s, that David Mellor - he of Sussex University - has selected and documented so copiously, is that it is beautifully presented, fascinating and extremely enjoyable at every turn. The second, which follows inevitably upon anything whatsoever to do with 'the Sixties' - to those of us, that is, whose early career was coincidental with them - is that of course it is misconceived.

The exhibition's faults are the creatures of its virtues, for Mellor is so taken with his material, in all its aspects, that he offers us neither a thorough documentary nor a straight-forward celebration of the art, shown on its own terms for its own sake. We are taken down the byways of the social history of the times, tramping along the road from Aldermaston, reading Private Eye and the International Times, gazing at Christine Keeler, mocking Harold Macmillan, or Harold Wilson as the case may be, listening to the Beatles and The Who, sitting in at Hornsey.

And as we browse, so we find ourselves chewing on the art - tachisme, or 'action painting'; colour-field abstraction; Pop painting, hard-edge and optical; New Generation sculpture and incipient conceptualism. So again we are deflected back to the documentary, to the places and the circumstances, to the loose and shifting affiliations and interests of artists throughout the period. Back we go to the Royal College; the studios and bomb-sites of Notting Hill of the late 1950s; and to the wharfs and warehouses of Saint Katherine's Dock 10 years on. The photographs in particular are marvellous, by Roger Mayne, Roger Coleman, Roger Freeman, Lewis Morley and Don McCullin - all those fresh, young, earnest, ambitious faces. I had expected such stuff to make me feel rather old. I can only say that I came away feeling not as old as all that.

It is all wonderfully indulgent and enjoyable, but the doubts remain, even so. The problem with any such survey is that it can never be at once hermetic and inclusive, particular and comprehensive. And with the Sixties, saddled with that tendentious reputation and over-simple label, the problem becomes acute. What were 'the Sixties', and when, if ever, did they begin? For anyone of my generation, born in the late 1930s and early '40s, they began, if ever, long before, with Elvis and Brando, Osborne, Kerouac and Traditional Jazz, Suez and Hungary. By 1965 or so, with satire and Profumo, the minicar and Jean Shrimpton's legs, they were over. The Sixties of Wilson, Flower Power, Protest, Prague and Paris, Sergeant Pepper and Peace & Love, were always another age, another world.

In eliding the two periods, Mellor rather misses the point, and the opportunity, both in sociological and creative terms. Nor does his basic premise hold: that here is a period now so neglected as to be in dire need of critical rehabilitation. Where has he been all these years? Private View, the Russell, Robertson, Snowdon encapsulation of his early period was published in 1965, and to turn its glossy, stylish pages today is hardly to move back into a vanished world.

Where are they now, Caro and Paolozzi, Freud and Auerbach, Jones and Blake, Caulfield and Hoyland, Riley and Hodgkin, King and Hockney? Well, still here, I suppose. The world has moved on, and while some artists have fallen into obscurity, following generations, of sculptors especially, have had their day in their turn. But, for all that, we are hardly addressing total eclipse.

Mellor speaks of 'realigning parts of the hidden history of British art', and quite rightly draws attention again to the work of William Green, with his action painting; to Tony Messenger and his expressionist image of James Dean's crashed car; to Pauline Boty, who died young, with her definitive Marilyn, 'The only Blonde in the World'. But where are the kitchen-sink painters and where, in particular, is Bratby, with his paintings for the film of 'The Horse's Mouth', with Alec Guinness as Gulley Jimson? And if there are to be the compendium and collage-based paintings of Boty, Blake and Phillips, where are those of Anthony Donaldson? And if the St Martin's sculptors are well represented, why is there so little of Paolozzi, and why nothing at all of the Royal College sculptors of the time, Hall, Panting, Plackman and the rest?

But we are all experts on the Sixties, and to carp too much is too easy. I wish that Mellor had confined himself to the earlier period, but, that said, I can only admit that he has most admirably caught the energy and sense of engagement that so characterised it. In those early, still comparatively innocent days, it was an energy directed above all upon the work itself and the doing of it. Hopes were that it would attract notice, that it would sell, that a name would be made thereby - but which young artist has not hoped as much? The important thing was that the work was done anyway, for its own sake, and today its essential integrity still shines out.

Most of all it is apparent here in the 'Situation' abstraction, shown by the Arts Council in 1963 - the first flush of maturity in the work of such as Gillian Ayres, the Cohen brothers, Hoyland, Law, Irwin, Mundy, Plumb, Smith, Vaux and Young. There they all were, European in sensibility yet responding to what was coming out of New York, looking about them but remaining quite themselves. They were professional enough - the professional ethic would come later. Mellor is quite right in this respect, that here is an authentic British school we have consistently undersold.

The Sixties: art scene in London; the Barbican Art Gallery, the Barbican Centre EC2, until June 13, supported by the Hulton Deutsch Collection; Apple UK; Atlantis European. David Mellor's excellent and substantial book on the exhibition - more than a mere catalogue - is published by Phaidon, Pounds 22

GB United Kingdom, EC P8412 Museums and Art Galleries CMMT Comment & Analysis P8412 The Financial Times London Page 19 1046
Arts: Today's Television Publication 930316FT Processed by FT 930316 By CHRISTOPHER DUNKLEY

Mr Lamont is due to stand up in the House some time after 3.30 but, broadcast news being what it is these days (heavy on speculation) you can choose from programmes which begin anything up to an hour earlier. Budget 93 on BBC2 starts at 2.30 and fields the heavy brigade: David Dimbleby, Peter Snow and Peter Jay. At 3.00 Radio 4 gets under way with PM Budget Special presented by Wendy Austin and Frank Partridge. For ITV's Budget 93 starting at 3.15 the presenters are John Suchet and Nicholas Owen, with Julia Somerville at Westminster and Dermot Murnaghan in the City. Then, at the sensible starting time of 3.30, Radio 2 joins in with Jimmy Young and Dominick Harrod presenting Budget Special. They promise not only comment and analysis but music: irresistible, surely. Assignment considers the peculiarly powerful position of soap opera in Brazil (7.45 BBC2). Secret Nature is a series about wildlife in the English Channel (8.30 BBC2). Camille Paglia's contribution to Without Walls was notorious long before today's screening since she talks about the Princess of Wales as sex goddess (9.00 C4).

GB United Kingdom, EC P7812 Motion Picture and Video Production CMMT Comment & Analysis P7812 The Financial Times London Page 19 217
Arts: Frank Pig Says Hello - Theatre Publication 930316FT Processed by FT 930316 By ANDREW ST GEORGE

Frank Pig Says Hello at the Royal Court Upstairs represents a type of play increasing its popularity in studio venues: a tight, two-handed psychodrama which asks actors and designer to be versatile, and in order to make itself understood urges the audience to sever contact with the rational world. But this makes deadly, wearisome and stultifying theatre.

Patrick McCabe's first play is an adaptation of his own fine novel, The Butcher Boy, midway between Patrick McGrath's Spider and Ian McEwan's The Cement Garden. It comes from the Gate Theatre, Dublin after winning - inexplicably - a Dublin 'New Play' award last year.

The stage action centres on the mental life of Francie 'Piglet' Brady, his daydreams and his psychoses. The play eschews plot, and opts for series of revisited and altered scenes from Brady's childhood intercut with episodes from later life. He turns out to be a sad child enslaved to fantasies from 1950s comics. He is disruptive at home and school, in league with a real-imaginary friend who becomes his alter ego in later life. His mother kills herself, his father dies and stays unburied in the parlour, while Brady takes a job in an abattoir.

The verbal interplay between past and present is a technical triumph for actors David Gorry and Sean Rocks, who deliver quick-fire Irish banter, but it makes woeful dialogue on stage: 'I had news for Philip. Philip, I have news for you. News? Yes, News. For me? Yes.'

This play fails because, despite director Joe O'Byrne's ingenuity in switching between scenes, the play makes no concerted impact. No one scene causes another one; the logic of psychosis means that anything can happen at any time, and that removes suspense. The narrative moves quickly, but by telling everything, it prevents tensions, affections and events from being shown and acted out. The appearance of a character with a red handkerchief is preceded by 'He had a red handkerchief in his pocket, and the crease on his trousers would cut your hand.'

Elsewhere, the action leans on musical effects: Glen Miller's 'Don't Sit Under The Apple Tree' recurs periodically to punctuate the scenes, as does Brady's own song, 'I'm a little baby pig I'll have you all to know, with my little curly tale and my nose that turns up so.'

The result is a confusing, difficult and annoying play which fosters a short attention span. Such works have altered the course of theatre. But this offers neither information nor moral challenge. It settles into an intellectual game. It makes its effect not in the situation which it creates for the characters, but in the smiles and scowls of the actors. It is a shame and a waste that the piece is so well acted.

Royal Court Upstairs until April 3, then on a national tour through April and May

GB United Kingdom, EC P7929 Entertainers and Entertainment Groups CMMT Comment & Analysis P7929 The Financial Times London Page 19 509
Arts: Arditti String Quartet - Concert Publication 930316FT Processed by FT 930316 By DAVID MURRAY

On Sunday the Purcell Room was packed for the Arditti's third recital (of four, concluding this Friday) in their survey of Schoenberg and his associates. Reporting on the first, Andrew Clements wrote here that their ultra-assured playing disclosed too little searching passion; but this time they warmed to their task at once, to much more exciting effect.

They began with Webern's sole 'twelve-note' quartet, op. 28. With its spare, intricate, serenely unfolding patterns, it is not obviously a thing to stir the blood - but the composer's rigorous economy has potent charms. A performance so attentive as the Arditti's was to paragraphing and natural breathing, to balance and to the vital nodes of the music, cannot but re-create Webern's original passion for combining abstract inquiry with precise appreciation of string-sound. Everything told; it was a clairvoyant account, and one to remind us why Webern's later music struck a postwar generation of composers with more revelatory force than Schoenberg's own.

For contrast the Arditti threw in Webern's 1906 'Rondo", a recent exhumation and a loquacious, skittery exercise in chromatics which shows what Webern - and Alban Berg too - might have stuck at, had their individual passion for deeper organisation (and Schoenberg's own stern example) not propelled them onward.

Hearing Schoenberg's 1927 Third Quartet next made the point vividly. Post-tonal writing could aspire to a Beethovenian density, but only if its defining rules were as tough as Beethoven's period-tonal ones had been. This Third, like Bartok's Fourth, used to have a reputation for pursuing an ideal of the New all too single-mindedly (where their later quartets were supposed to aim at friendlier compromises). The Arditti performance proved that intelligent loyalty to the new plan can attain complete expressive conviction without cheating, without falling back upon stock Romantic echoes.

That bracing result was only slightly compromised, after the interval, by the Arditti's coolly rapturous account of Schoenberg's Verklarte Nacht sextet (with two distinguished guests from the Alban Berg Quartet). Might it be a precondition for playing later Schoenberg so well that the players must have fathomed earlier Schoenberg, post-Romantic but pre-'dodecaphonic', with such sympathy?

From the start of the 1899 sextet, where the Arditti turned the usual thick bass-swells into hard, doomy throbs, thus sharpening the drama of the piece immeasurably, it was clear that this 'Transfigured Night' would be freshly transfigured. And it was: the later contrapuntal strife transparently argued, the apotheosis made luminous by professional care for the notes, without super-added sentiment. Before and after his single-handed musical revolution, Schoenberg earned just such searching executive attention - but inspired champions of the Arditti order have been few and far between.

GB United Kingdom, EC P7929 Entertainers and Entertainment Groups CMMT Comment & Analysis P7929 The Financial Times London Page 19 474
Business and the Law: No clear-cut favourite - The three options for reforming the law on abuse of market power by dominant companies Publication 930316FT Processed by FT 930316 By ROBERT RICE

The UK government is shortly expected to announce its preferred option for reforming the law on companies abusing their power in the marketplace to stifle competition. In a green paper published last November, Mr Michael Heseltine, the trade and industry secretary, canvassed three options. These are:

to retain the existing case-by-case approach under the 1973 Fair Trading Act and 1980 Competition Act for dealing with anti-competitive practices. Under this option, the Office of Fair Trading would be given stronger investigatory powers and businesses would be made liable for damages and possible civil penalties for continuing abuse;

to introduce a general prohibition on abuse of market power based on Article 86 of the Treaty of Rome, backed by tough investigatory powers for the OFT and fines on companies of up to 10 per cent of worldwide turnover;

to introduce a general prohibition, give tough investigatory powers to the OFT and authorise stiff financial penalties, but retain the investigation provisions of the Fair Trading Act, which allow for industry-wide monopoly inquires.

Initial reading of the green paper suggested that the government favoured the third option. This in itself was a big shift from its position just two years ago. Speaking about competition policy in July 1990, Mr John Redwood, then corporate affairs minister, said: 'Existing UK competition law has plenty of powers to enforce open and fair markets. There are already several statutes giving extensive investigatory powers to the authorities. The government has decided not to introduce a prohibition-based policy on abuse of dominant position but to concentrate on effective use of existing powers.'

The change in attitude since 1990 reflects growing pressure for comprehensive reform. The government remains committed to reform of restrictive practices legislation, and is aware of the contradiction of changing the law on anti-competitive agreements while leaving the law on abuse of market power unchanged.

Since 1990, subsidiarity - allowing decision-making to be carried out at the lowest appropriate level - has emerged as a leading issue within the EC. Brussels has made it clear that in future it will deal only with the most significant competition infringements or cases which are likely to advance the law, leaving the rest to the national courts.

There is also genuine concern that the present UK system is not working. It is weak on deterrents, and the 1980 Competition Act has provided slow and ineffective procedures for tackling abuse.

In light of such pressures, those businesses hoping that the consultation exercise will result in a decision not to change the law on monopoly power are likely to be disappointed. The key question, however, is whether the responses to the green paper have persuaded the government to shift ground since November, away from a position close to option 3 - calling for a general prohibition - to one based on option 1 - retaining the case-by-case approach. Mr Heseltine's problem is that no clear consensus on the best option has emerged.

The Confederation of British Industry, after extensive consultation with its own members, is broadly against any reform, but if the government is determined to press ahead, then it would favour some variation based on option 1.

Businesses used to competing with a dominant player in the market, such as Mercury Communications, are generally behind option 3. The Consumers' Association also supports it. 'Restraints on competition almost always act against the consumer, by encouraging inefficiency, by limiting choice and by enhancing the power of vested interests,' says Mr Stephen Locke, CA's director of policy. 'What is needed, and already exists at Community level, are clear prohibitions, substantial penalties for breaching them and full rights for third-party redress, enforced by an agency with strong powers of investigation.'

The views of competition lawyers appear to vary with the position of their corporate clients. But when they divorce their views from their clients' interests, most appear to favour options 2 or 3.

The government, too, finds itself in a quandary in that a prohibition on abuse of a dominant position would have a huge impact on the regulated utilities, such as telecommunications, gas and electricity. It retains a golden share in most of them and might understandably be reluctant to adopt a regime which could have a big effect on the way they currently do business. On the other hand, the government is aware that there can be no justification for a prohibition not applying to the regulated utilities.

The view of the CBI will undoubtedly carry weight. The employers' organisation says a prohibition is too inflexible and 'an inappropriate tool for ensuring that markets are competitive'. Even dominant companies must be in a position from which they can react to competitive pressures, it says. The CBI wants to retain a system which enables cases to be dealt with on an ad hoc basis rather than attempting to devise rules which make generalised distinctions between competitive and anti-competitive practices and ban the latter. It is unacceptable, the CBI adds, 'that business could become liable for fines for behaviour which at the time it was undertaken was believed to be legal'.

The CBI also believes a system based on prohibition would impose very high costs on business in the form of compliance and these costs would not be offset by any benefit resulting from the change - a view which is partially supported by many competition lawyers.

This looks like a 'big industry' response to the issues raised by the green paper. But the CBI insists that it represents the views of its members across the board. The CBI's smaller-companies council is particularly concerned that small and medium-sized enterprises would bear a disproportionately high percentage of the costs imposed by a prohibition system.

The views of companies such as Mercury (which has competed against BT, the dominant player in telecommunications, for the past 11 years) cannot be ignored, however. In contrast to the CBI's 'if-it-ain't-bust-don't-fix-it' message, Mercury believes that if the present system is proven to be inadequate then tinkering with it should not be an option. It believes that, for the regulated industries, industry-specific rules are not effective enough to deter anti-competitive behaviour. Instead, it argues, a radical solution is needed. It favours the introduction of a prohibition system making anti-competitive conduct per se unlawful, backed by a choice of effective remedies including the right to bring private legal actions.

Bringing private legal actions would be extremely difficult, however. It would take a long time to gather the necessary evidence, and the English courts have no experience in judging such complex economic issues. But Mercury says the intention is not to overload the courts with lengthy cases. Rather, it wants a system under which the 'deterrent effect will be sufficiently strong to replace the existing incentive to abuse market power until told to stop'.

Mr Heseltine faces some tough choices. The underlying pressure to beef-up the law on abuse of market power and to bring the UK into line with its European partners remains. But the government will also be wary of imposing a heavy new burden of costs on UK industry as it begins to emerge from recession.

GB United Kingdom, EC P9651 Regulation of Miscellaneous Commercial Sectors P99 Nonclassifiable Establishments GOVT Government News P9651 P99 The Financial Times London Page 18 1239
Business and the Law: Selection process for Commission jobs attacked - European Law Publication 930316FT Processed by FT 930316

The appointments of two directors to the European Commission Directorate-General for Fisheries have been annulled by the European Court of First Instance, because the successful applicants were chosen by the Commission not because of their qualifications but because the EC countries from which they came were 'owed' the jobs.

The case was brought by two of the unsuccessful applicants for the posts, who were rejected on the grounds that they were insufficiently qualified in spite of both having worked on EC fisheries policy. The two successful applicants were economists from Spain and Italy.

The Court found that the two previous holders of the posts had been Spanish and Italian and that, in spite of advertising the jobs openly, the Commission had already decided who the new directors would be before the applications of the other candidates had been considered properly.

The case brings into the open the political nature of the selection procedure for Commission jobs. It is hoped the Court's judgment will lead to greater transparency in Commission appointments.

T-58/91: Booss and Fischer v Commission, CFI 4CH, March 3 1993.

Luxembourg birth and maternity allowances discriminatory

The European Court last week upheld an action brought by the Commission against Luxembourg for imposing discriminatory rules for the grant of birth and maternity allowances.

Under Luxembourg law, ante-natal allowances were payable to pregnant women on condition that they were legally domiciled in Luxembourg and post-natal allowances were payable on condition that one of the parents of the child had been legally domiciled in Luxembourg for at least one year at the time of the birth. Maternity allowances were also available for any pregnant woman or mother legally domiciled in Luxembourg.

The Court ruled both types of allowance were social security benefits under EC law and thus should be capable of being enjoyed by both migrant as well as purely national workers.

The Luxembourg government argued that the rules were not discriminatory because they applied to both Luxembourg nationals and nationals from other EC states. The Court rejected that argument, as it found that the conditions were more easily fulfilled by a Luxembourg national than a national from another member state.

C-111/91: Commission v Luxembourg, ECJ FC, March 10 1993.

Belgian environmental legislation in breach of EC law

The European Court has ruled Belgium in breach of EC environmental laws on air quality norms for nitrogen dioxide.

The EC legislation sets certain limits for the amount of nitrogen dioxide in the air. These limits can be reduced by individual Community countries, but only after consultation with bordering states which may be affected by lower limits.

The legislation also obliges member states to consult one another in the event of a pollution incident which results, or is likely to result, in the limits being ex-ceeded; to keep the Commission informed of any consultations; and to give it the opportunity to participate.

Belgium implemented all the legislation except for the provisions relating to the consultations. The Belgian government submitted that these provisions did not need to be implemented as Belgium did not envisage taking any action which would lead to the consultation procedure being opened.

The Court rejected that argument. The provisions relating to the consultation procedure were an indispensable element of the legislation.

Failure to implement such provisions constituted a breach of Community law, in that Belgium had failed to implement fully the EC legislation as requested.

C-186/91: Commission v Belgium, ECJ FC, March 10 1993.

BRICK COURT CHAMBERS, BRUSSELS

QR European Economic Community (EC) BE Belgium, EC LU Luxembourg, EC P9512 Land, Mineral, Wildlife Conservation P9441 Administration of Social and Manpower Programs P9721 International Affairs GOVT Legal issues P9512 P9441 P9721 The Financial Times London Page 18 633
Business and the Law: Outside advice - Legal Briefs Publication 930316FT Processed by FT 930316

An independent survey commissioned by City lawyers Taylor Joynson Garrett of Britain's top 1,000 companies shows that 68 per cent are using more or the same amount of legal advice from outside law firms this year compared with 1992.

In-house legal departments are still contracting, however, with 53 per cent of companies saying they would be employing the same number or fewer in-house lawyers this year. Lawyers working in medium-sized companies with smaller legal departments are particularly at risk, with 15 per cent of companies in this category expecting to make cuts in their in-house legal teams in 1993.

The survey also showed that 20 per cent of the top 1,000 companies had recently taken advice on corporate recovery matters, and that 10 per cent had sought advice on issues connected with the future viability of their businesses or part of them. The companies all agreed that law firm fees were 'very high', but that cost was only the fifth most important factor when choosing legal advisers. Specialist expertise came top.

GB United Kingdom, EC P8111 Legal Services TECH Standards TECH Services P8111 The Financial Times London Page 18 203
Business and the Law: High cost of failure to carry out reforms - Legal Briefs Publication 930316FT Processed by FT 930316

The Law Commission, the UK government's law reform body, complained last week that government failure to implement its proposals for reform, particularly in the area of property law, was costing the UK millions of pounds in unnecessary legal fees and court costs. More than half of the 40-plus reports produced by the commission since 1984 remain either under consideration or unimplemented. This is in sharp contrast to 20 years ago. Of the 30 law reform reports submitted to the government between 1966 and 1973, 28 were implemented in an average time of two years.

GB United Kingdom, EC P9651 Regulation of Miscellaneous Commercial Sectors P65 Real Estate GOVT Legal issues P9651 P65 The Financial Times London Page 18 138
The FT Review of Business Books (33): High noon for the Legion of Doom Publication 930316FT Processed by FT 930316 By MAX WILKINSON

THE HACKER CRACKDOWN by Bruce Sterling Viking Pounds 16.99, 328 pages

ONE CAN appreciate the fun. You are hunched over the computer in your bedroom, while Mom and Dad are relaxing downstairs in front of the other kind of screen. You are hooked up to the telephone for hours, but it is not costing a cent because the first call you make is to the phone company's billing computer to tell it to forget the charges. Routine stuff; but then, after hours of trying different numbers and different passwords - you hit it big.

Pages and pages of telephone numbers and switching codes scroll down your screen. This is no junk. The computer sending it is in the telephone command centre. It thinks you are a supervisor and waits, like Aladdin's slave, to do your order. So what? Well, how about this for a crazy thing? You re-route everyone who dials the Palm Beach County Probation Department (in Delray Beach, Florida) to Tina in New York State. She sells them pornographic phone-sex.

Then you call up a bulletin board (a dial-up computer used as a message centre by fellow crazies) to tell them, and particularly the Legion of Doom, what a smart-ass you are. You sign on as Fry Guy, like usual. The other phone phreaks, they laugh good. They say (but you disbelieve them) that they have pulled many smarter raps. Then you go buy pizza.

Unfortunately, some people who read your message are not so completely amused. They write it all down in spiral notebooks and then ask some even less humorous guys: what kind of a perv would connect citizens who need the Miami probation service to an East Coast phono-tart? And they say, maybe his next little joke will be to call up some goddam computer and tell it to fire a cruise missile at Wall Street . . .

So, a few months later, you are engaged in amusing converse with the Legion in your bedroom when all the house doors are burst open by men with guns. 'You Fry Guy?', they say. 'Place your hands on your head and move real slow away from that machine.' Mom and Dad say this is unbelievable.

But it happened. Fry Guy, a 16-year-old schoolboy who also admitted infiltrating the MacDonald's payroll computer to give two of his friends a raise, was convicted on May 31 1990, and put on probation.

The case thoroughly alarmed the US federal authorities. It showed that a teenager with the simplest computer and a phone line could penetrate the innermost fastnesses of the telecommunications network and re-program the computers that control it. What mischief could he then do] Calls diverted or monitored, accounts changed at will, telephone numbers deleted, altered or created out of thin air; all this and more was within the grasp of the hackers - and that 'more' was the ability to wipe out the whole telephone system, including emergency services, for hours - possibly days.

Bruce Sterling has done a good job in describing the authorities' crackdown since then on a group of hackers with sinister names, such as Legion of Doom, Prophet, Urvile and Leftist, whose fun, it seemed, was becoming far beyond a joke.

During the 1970s and early 1980s, the US authorities had been more tolerant of computer pranksters. One reason was that they refused to believe that the network of thousands of academic, defence and company computers linked by global telecommunications could be penetrated seriously by outsiders. Intrusions were difficult to detect, and any that were discovered seemed to do relatively little damage. Even when hackers were using telephone lines without paying, the 'theft' of time from the network seemed rather abstract.

However, by the mid-1980s, as home computers became more sophisticated, some spectacular break-ins were occuring. By far the best account is in Clifford Stoll's The Cuckoo's Egg, which explains how a German hacker hijacked the international telecommunications system and broke into high security computers all over the US, including one at the Pentagon.

Sterling tells the story of a concerted counter-move by the authorities. In Operation Sundevil, during three days in May 1990, 40 computers were seized with some 23,000 floppy disks containing, stolen passwords and credit card numbers, programmes and logs of information exchanged by hackers over the network.

Sterling, unlike Stoll, shows some sympathy for the more 'responsible' hackers (ie those doing it as an intellectual game rather than with criminal intent), but he acknowledges that the line is difficult, if not impossible, to draw. He also explores libertarian issues, such as the damage caused by the security services to innocent computer users.

This is an interesting but uneven book, in which fascinating facts are sometimes padded out with generalisations and a bit too much discussion of issues. A newcomer to the field should start with Stoll's superb 'whodunnit' of cyberspace. Sterling is better than adequate in explaining what happened next.

GB United Kingdom, EC P2731 Book Publishing TECH Products P2731 The Financial Times London Page XVI 859
The FT Review of Business Books (34): The financial thriller stays out in the cold Publication 930316FT Processed by FT 930316 By JDF JONES

THE INSIDERS by Judi Bevan Piatkus Books Pounds 14.99, 385 pages

GOLDSCAM by Peter Miller Lindsay Ross Publishing Pounds 14.99, 430 pages

WITH THE end of the Cold War dealing a terrible blow to the conventional spy-thriller, publishers are searching for a new genre. What other professions can furnish the spy's best-selling combination of exotic locations, high living, beautiful women, skulduggery, dirty tricks, esoteric jargon and the sense of being on a secret inside track behind the headlines? FT readers will know the answer.

Enter the 'Financial Thriller'. Surely international business is the very stuff of unputdownable drama - or ought to be. But it is not working: there is no sign of the Deighton or the Le Carre, even the Ludlum or the Follett, of the tombstone and the blue chip. The two latest examples are depressing confirmation of my point.

Judi Bevan gives us the sad story of Jack Armstrong of Butler's Biscuits, an ultra-ambitious MD of the mid-1980s and a financial innocent who ventures into the City to launch a mega takeover bid where he is out of his depth in the world of concert parties, insider trading, smooth merchant bankers, share support indemnities - that sort of thing.

Bevan is a financial journalist and her book can no doubt be read as a roman a clef, though she is careful to provide walk-on parts for Seelig, Saunders, Ronson, Halpern, and all the rest of the '80s crew. There has never been a novel in which the FT was more frequently quoted (and my Lex colleagues so taken in vain). The detail, whether of Savoy lunches or the changing figures on the Topic screen, will have its own fascination for many FT readers.

Goldscam relies on the same verisimilitude of detail. Here's a geologist/consultant with a Midas touch recruited to help a South African mining house move offshore. Peter Miller all too evidently knows his Southern Africa and also this world of orebodies in which the central scam distinguishes between 'parts per million' and 'ounces per ton'.

But there's no way to evade the point . . . You can't write a Financial Thriller if you can't write.

Judi Bevan may be a competent financial journalist but - I'm sorry - she's not a novelist. Peter Miller may well be a brilliant metals analyst but he's no Joseph Conrad, nor Nadine Gordimer either. Bevan and Miller are adequately convincing in their own fields but they both insist on writing about things like sex, in which they are both cringe-makingly appalling. Takeover bids are eminently suitable subjects for a novel; sex - and love - are more difficult, as the world's better novelists know.

GB United Kingdom, EC P2731 Book Publishing TECH Products P2731 The Financial Times London Page XVI 485
The FT Review of Business Books (32): Small screen, but big ideas Publication 930316FT Processed by FT 930316 By PRABHU GUPTARA

TOM PETERS has been the most popular (if also most controversial) management guru through these difficult times, and his Recession As Opportunity: Smart Moves for Tough Times (Euromanagement, Pounds 745) is a straight recording of his 1991 lecture on the subject. So why issue it a year later and - more to the point - why review it in 1993? Because business conditions have not changed and because what he had to say then is no less relevant now.

This recession is unlike previous recessions, Peters thinks, in that, even after the economy picks up, intense global competition will be here to stay. His recipe for surviving, and even profiting, from this recession is therefore six-fold.

First, redouble employee involvement and continuous improvement. Second, inculcate trust through the asymmetrical distribution of pain - that is, job losses, salary cuts or bonus cuts (as and where relevant) must be most severe at the top of the corporation and gradually less severe as one moves down towards ordinary workers. Third, improve and speed up stakeholder involvement. Fourth, keep up the attack on ensuring that you have world-class manufacturing. Fifth, the battleground for the 1990s is speed and the problem is that if you lose this battle you do not have a chance of ever catching up. Lastly, increase your professional development and advertising budget.

You can see why Peters is controversial. Even if you disagree with him, however, you cannot deny that he makes you think - which is not something that can be said for all so-called gurus. I continue to carp, however, at straight videoing of lectures. Whether the perorations are given by gurus or by others, the medium militates against the form. If business videos are to be anything more than home-movies, they must accomplish something more than simply record.

*****

A pack that tries to accomplish more is Market-led Strategic Change (NPC Associates, Pounds 750). Nigel Piercy can be equally fresh and uncomfortable in what he has to say about how to introduce and drive such change through an organisation; there is at least a presenter with whom there is some interaction, and there are various bits of drop-in footage. Why, then, is the video ineffective as video? Principally because Piercy allowed himself to work with a video-team who did not understand his message sufficiently, or perhaps did not have the clout to put it across effectively. The result is that Piercy's presentation style may be terrific in person, but is less effective on screen.

That is not to detract from the importance of what he has to say and, fortunately, the rest of the pack more than makes up for this weakness: it includes his widely-praised book on the subject, the Trainer's Manual is good and the Worksheet Manual (consisting of Diagnostic, Implementation Planning, and Action planning worksheets) is excellent.

*****

Incidentally, if you are looking for a guru on a particular subject, the first guide to European professors, Who's Who in European Executive Education has just been been released (IMEC Publishing). The same firm also produce the Official Guide to European MBA Programmes and have the still-unusual practice of issuing their material on computer disks. This makes the location of information wonderfully quick and easy.

Up-to-date prices and other details of all these products are available from Prism International, which has a new phone number 0252-28215, as well as a new fax number: 0252-344117.

GB United Kingdom, EC P2731 Book Publishing TECH Products CMMT Comment & Analysis P2731 The Financial Times London Page XV 608
The FT Review of Business Books (31): Reality is unreal (official) Publication 930316FT Processed by FT 930316 By ANDREW ST GEORGE

GLIMPSES OF HEAVEN, VISIONS OF HELL by Barrie Sherman and Phil Judkins Hodder & Stoughton Pounds 12.99, 224 pages

VIRTUAL WORLDS: A JOURNEY IN HYPE AND HYPER-REALITY by Benjamin Woolley Blackwell Pounds 16.95, 274 pages

JUST BEFORE Samuel Taylor Coleridge fell asleep to create the Kubla Khan, he was browsing in a devotional book, Purchas his Pilgrimage. He read: 'What if a man should sleep, and in that sleep should dream, and in that dream should go to paradise. And what if he should be given a flower as a token that he had really been there? And what if he should wake with that flower in his hand? Aye, and what then?'

Two hundred years on, the answer is Virtual Reality - the potential to create any world while staying in this one. John Walker, founder of Autodesk, the Californian software company, puts it succinctly: 'When you are interacting with a computer, you are not conversing with another person. You are exploring another world.'

This other world, Virtual Reality (VR), comes from a computer-based technology which gives the illusion of immersion in an artificial world, or of presence in a remote location in the physical world. State-of-the-art VR enables you to move around in the computer-generated environment and interact with it. It is interactive, intensive, immersive, illustrative and intuitive.

VR became commercially available in March 1991 before being academically understood. The machine evolved faster than the legal or moral concepts it required. It has spawned a clutch of histories and interpretations, the film Lawnmower Man (March 1992) and Howard Rheingold's fine book Virtual Reality (1991) prominent among them.

Now two books, Glimpses of Heaven, Visions of Hell: Virtual Reality and its Implications, and Virtual Worlds, show a broadening response to VR. The former is as bullish as the latter bearish. But both agree that VR is morally and legally still unhatched; that technologically it is a fledgling; and that, commercially, it is ready to leave the nest.

Morally, VR offers the difficulty of what appears to be another consciousness, created at will, out of our own, which interacts with ours. What happens now, when consciousness is no longer an inward domain but out there, made palpable?

Technologically, the three essentials are already in place. To create the virtual world visually, you need either a stereographic helmet containing miniature televisions sending images to each eye, or stereo cameras, or a wrap-around screen. To instruct the computer, you need a 'dataglove', joystick or 'mouse' that allows the computer to plot your position and respond when you grasp a virtual object in the virtual world. To run the whole 'reality engine', you need a string of computers.

Commercially, there are five players in the VR game: manufacturers (VPL Research); industry users (Boeing, British Aerospace); researchers (the University of North Carolina, Massachusetts Institute of Technology and the University of Salford); arcade games and software companies (W Industries); and assorted lawyers, artists and philosophers. But the rush for market share is just starting.

Glimpses of Heaven is a brisk, positive book, chancily argued but written with brio and excitement. There is a dodgy chapter on why women, heretofore supposed to be incompatible with computers, will fare better in an intuitive and metaphoric world, a kind of computemancipation, and some airy social theory on VR re-entry problems, underclasses, and new forms of labour.

But the book's strength is its free play of intelligence. It asks simple questions. Is it a bad thing to get what you want, albeit virtually? If this is bad, do legislators have the right to prevent others from having it? What happens when VR crosses national boundaries? Who owns the 'virtual space' between people immersed in the technology?

In contrast, Virtual Worlds finds a scepticism born of Woolley's long contact with the hypes and hopes of VR. This is a serious collection of stimulating essays on the philosophical questions raised by VR. If Galileo was right to see the universe as a book written in mathematics, Woolley asks, what can be reduced to maths? Of that, what is computable?

There is a wonderful chapter on parallel universes. Here, we do not know which one of an infinity of universes we might be in until it happens. Then you discover you are in the 'my bridesmaid/girlfriend has run off with the best man' world, and no other.

AT the moment, VR is still crude in effect. The last thing you think of during VR immersion is reality. But virtual realities are real in our reaction with them, not in what they are. Computer guru Jaron Lanier believes it is not the idea of artificial reality that is strange but the idea of reality itself. Coleridge should be told there is now a VR-related project called Xanadu. He would turn in his sleep.

GB United Kingdom, EC P2731 Book Publishing TECH Products CMMT Comment & Analysis P2731 The Financial Times London Page XV 840
The FT Review of Business Books (29): Guruship in context Publication 930316FT Processed by FT 930316 By WILF ALTMAN

MANAGEMENT GURUS by Andrzej A Huczynski Routledge, Nov. 92, Pounds 19.99, 352 pages

WHY DID the 19805 generate such vast interest in new management ideas and in the gurus who propounded them at conferences and seminars, in books, newsletters, videos and cassettes? What makes a management guru?

The author of this well-researched book puts guruship into its historic context and shows the relationship between demand - as organisations become larger and more complex - and the diversity of supply.

The trend probably began 100 years ago, with F W Taylor, the 'Father' of scientific management, and other pioneers like Fayol, Mayo and Maslow. In the seventies and eighties, Ted Levitt revolutionised managements' views of marketing and more recently Peters & Waterman's In Search of Excellence has had a powerful impact.

The author, a senior lecturer at the University of Glasgow's Business School, groups six 'families' of popular management ideas or specialisms, such as scientific management and human relations, each of which produced its own gurus. Management ideas and their values, he argues, stem from the originator's position, or involvement, whether in academic research, or consultancy or experience of management. At the top of the hero-manager category, according to Fortune's list of best-selling books in the US 1979-1988, we find Lee Iacocca's autobiography, followed by Peters & Waterman's In Search of Excellence and Trump on The Art of The Deal.

This is a useful step by step guide for those who aim to achieve guru status, as more aspirants at business schools, in business journalism and in industry seem likely to. But where are the latterday gurus able to help companies cope with the turmoil of recession and survival and the aftermath?

GB United Kingdom, EC P2731 Book Publishing TECH Products P2731 The Financial Times London Page XIV 315
The FT Review of Business Books (28): A new weapon for the trouble-shooters Publication 930316FT Processed by FT 930316 By JOHN HARVEY-JONES

THE FINANCIAL TIMES ON MANAGEMENT edited by Christopher Lorenz and Nicholas Leslie FT/Pitman Pounds 25, 232 pages

I FIND it extraordinary that so few financial journals or business pages follow developments in the art of management itself, in spite of the fact that it is obvious that the difference between successful companies and their less successful brethren lies in the skills and abilities of their management.

There is no lack of advice to the manager. There was a time when I could, and did, read almost every new management book as it appeared, but it is impossible to do so today. The Financial Times Management Page has long been required reading for me because of my continuing fascination with the study of management, and it is also something that I look forward to each week.

Like most practising managers I have little empathy with the 'instant solution merchants.' Every management problem is unique; in my experience there is never a single solution. In the ideal company, management is ultimately about the concerns and efforts of groups of people working together to achieve a common goal. The skill of the manager lies in making the choices which lead to success.

The Financial Times Management Page is invaluable. It features factual reports on what a variety of managers are actually doing. Moreover, it sets these reports in both an international and a financial context. It therefore acts as a sort of look-out, scanning the horizon and alerting us to what others are thinking and doing.

One seldom reads an article without it jogging some internal response. The Management Page does not set out to tell you what to do - rather it sets out to tell you what others are doing and the successes or difficulties they have encountered.

As a regular reader I had not expected that Financial Times on Management would provide me with new perspectives since, apart from new commentaries, it relies largely on reprinting articles published during the past two years. However, I was wrong. I now realise that, as well as reading and mentally noting the articles, I could have gained a lot by filing them under various headings and re-reading them from time to time.

The sub-title - 'grappling with change and uncertainty' - says it all. The only certainty for the future is uncertainty, and the sure knowledge that we are all going to have to cope with unpredictable change at an ever accelerating rate. Change can be either a threat or an opportunity - and it is a cruel exposer of management inadequacies. By the use of many examples the book underlines the need continually to change and adjust to these forces and clearly shows the fate of those who fail to be flexible in their thinking and strategies. Dealing with change is not simple, and it only works if the culture is changing in harmony with the organisational or operating concepts.

The introduction sets out 12 messages, illustrated throughout the book. The responsibility of the manager is to select the particular ones needed by his organisation, and then to transfer the ownership of such ideas to his people. Despite the complexity of business situations and the need for tolerance of ambiguity and differences of approach, the manager can only cope with a very small number of objectives at a time. Business messages have to be made simple if they are to be believed and acted upon, but they also have to be consistent and sustained if they are to result in action.

The book demonstrates clearly the dynamic nature of business management and the fate of those who believe that there is a safe haven where they can rest and 'consolidate.' The increasing trends towards globalisation and the enabling power of the computer age have produced yet another pressure on business, this time for speed of reaction. Time has always cost money, but lack of speed of change in a company can often lead to a fatal loss of competitive advantage. It is now essential not only to know where you want to go and what you want to do, but to do it faster than your competitors.

If I have a criticism it is that, in spite of the efforts to encompass the needs of small businesses, there is not enough reference to the special opportunities and difficulties they face. More than 80 per cent of our businesses are small, and they employ the majority of people in the UK.

Small businesses face many of the problems of the large, without the resources to cover mistakes, as well as having a vast array of unique difficulties of their own. Our future national economic success is heavily dependent upon the ability of small businesses to fight their corner against the best in the world. They need all the help they can get.

Good managers are constantly seeking to improve their skills and always looking at the practical experience of others for ideas they can emulate, or warnings of pitfalls to be avoided. The Financial Times on Management contains plenty of both and, thanks to the paper's ubiquitous coverage of the business world, it culls its examples from every country and every type of industry. It is essential reading for us all.

GB United Kingdom, EC P2731 Book Publishing TECH Products P2731 The Financial Times London Page XIV 915
International Company News: CRA makes hostile bid for Cail Publication 930316FT Processed by FT 930316 By KEVIN BROWN

COAL and Allied Industries (Cail) is likely to wait two weeks before responding to a hostile ADollars 11.50-a-share takeover offer from CRA, the Australian mining group, Mr Tony Haraldson, managing director, said yesterday.

Mr Haraldson said directors would seek an independent valuation of the company before responding to the offer, which values Cail at ADollars 716m (USDollars 511m). CRA owns 40.4 per cent of Cail following a ADollars 7.85 a share offer in March 1991, and the purchase of a further 2.9 per cent stake yesterday morning.

The offer is conditional on approval by Australia's Foreign Investment Review Board because CRA is 49 per cent owned by RTZ of the UK.

Coal and Allied Industries CRA AU Australia P10 Metal Mining P12 Coal Mining COMP Acquisition P10 P12 The Financial Times London Page 31 152
International Company News: Pacific Dunlop sees brighter prospects Publication 930316FT Processed by FT 930316 By KEVIN BROWN

PACIFIC Dunlop, the Australian industrial and food group, yesterday announced a 14 per cent increase in net profits to ADollars 121m (USDollars 86m) for the first half to the end of December, on sales up 11.6 per cent to ADollars 3.2bn.

Mr John Gough, chairman, said the group was 'over the worst of the recession', and forecast that full-year profits would increase 'significantly'. The group maintained the dividend at 10.5 cents, 55 per cent franked.

Pacific Dunlop said sales increased in all its Australian operations, which range from fashion clothing and processed food to packaging, automotive products and telecommunications cables.

The Petersville Sleigh food division, acquired in 1991 from the Adelaide Steamship group and renamed Pacific Brands Food, increased earnings before interest and tax by 45 per cent to ADollars 29m.

The group said its international medical and battery businesses accounted for 38 per cent of profits and 33 per cent of turnover, compared with 29 per cent and 31 per cent in the comparable period of the previous year.

Mr Gough said the group was reaping the benefits of restructuring and rationalisation in the previous two years. He said a tentative upturn in demand for industrial products was being matched by a strengthening in retail demand, but profit margins remained under pressure.

Mr Gough said trading conditions remained difficult.

Pacific Dunlop AU Australia P20 Food and Kindred Products P23 Apparel and Other Textile Products P26 Paper and Allied Products P308 Miscellaneous Plastics Products, NEC P335 Nonferrous Rolling and Drawing FIN Interim results P20 P23 P26 P308 P335 The Financial Times London Page 31 281
International Company News: Packer pays ADollars 49m for 5% stake in Fairfax Publication 930316FT Processed by FT 930316 By KEVIN BROWN SYDNEY

NINE Network, the Australian television group controlled by Mr Kerry Packer, yesterday revealed that it paid ADollars 49.7m (USDollars 35.5m) for a 4.98 per cent stake in John Fairfax Holdings, the newspaper group controlled by Mr Conrad Black.

The announcement prompted speculation that Mr Packer was planning a bid for Fairfax, which owns the Sydney Morning Herald, the Australian Financial Review and The (Melbourne) Age.

However, the re-election on Saturday of Australia's Labor government means there is little prospect of a change in the law regulating cross-media shareholdings, which would be required before Mr Packer could bid.

The conservative opposition coalition had indicated that it might change the law, which prevents broadcasting operators from acquiring shareholdings of more than 15 per cent in newspaper groups.

If he wished to bid for Fairfax, Mr Packer would have to dispose of his controlling 38 per cent shareholding in Nine Network, which would free him from the cross-media ownership restrictions.

Mr Packer sought to take a 15 per cent stake in Fairfax when it was acquired in 1991 by a consortium led by Mr Black, chairman of Hollinger, the Canadian media group and proprietor of the UK Telegraph group. He was forced to withdraw from the consortium after widespread criticism of his prominent role in the Australian media threatened the success of Mr Black's bid.

Nine Network said it had bought the Fairfax shares as an 'attractive investment'. There were no 'current plans' to increase the shareholding.

Nine Network also announced a 1.3 per cent increase in net profit to ADollars 39m for the six months to the end of December. The board declared an interim dividend of 7 cents, fully franked, compared with nil last year.

The board said Mr Packer would resign as chairman, as previously announced. He will be replaced by Mr Bruce Gyngell, who was head of TV-AM, the former British television broadcaster.

Nine Network Australia John Fairfax Holdings AU Australia P4833 Television Broadcasting Stations P2711 Newspapers COMP Shareholding P4833 P2711 The Financial Times London Page 31 360
International Company News: Westpac to reduce costs by cutting 2,000 jobs Publication 930316FT Processed by FT 930316 By KEVIN BROWN

WESTPAC, the troubled Australian bank, yesterday said it planned to make 2,000 staff redundant as part of a restructuring of retail operations intended to cut operating costs by ADollars 150m (USDollars 107m) a year.

Mr Robert Joss, managing director, said most of the staff in question would leave over the next three months as the retail business was split into separate consumer and commercial divisions.

'This new structure will enable us to better serve the different needs of our business and household customers, and presents an important step forward in making Westpac the best retail bank in Australia,' he said.

The announcement, which was expected, comes in the wake of a wide-ranging review of Westpac operations following a record loss of ADollars 1.5bn for the year to the end of September.

The bank announced last week that it planned to dispose of many of its Asian operations, and consolidate its US operations into one office, as part of a restructuring of international activities.

Mr David Morgan, head of retail banking, said the redundancies would raise the bank's retail productivity to world class levels, but would not affect customer service.

Westpac said last year that it would probably make up to 4,000 of its 20,000 staff redundant in an attempt to reduce its higher than average expenses to income ratio.

Westpac Banking Corp AU Australia P602 Commercial Banks PEOP Labour COMP Company News P602 The Financial Times London Page 31 259
International Company News: Adsteam provision leads to ADollars 61m loss Publication 930316FT Processed by FT 930316 By KEVIN BROWN

THE ADSTEAM group of companies, formerly controlled by Mr John Spalvins, announced substantial losses yesterday, indicating that interest costs and falling property prices continue to plague the group.

Adelaide Steamship, formerly the group's flagship, announced a net loss of ADollars 61m (USDollars 43.5m) for the six months to the end of December, compared with a loss of ADollars 69m for the comparable period of the previous year.

The company said earnings before interest and tax rose 23 per cent to ADollars 241m, while financing costs fell 13 per cent to ADollars 290m. However, the deficiency in shareholders' funds grew by 13 per cent to ADollars 620m.

Mr George Haines, managing director, said the result included an abnormal loss of ADollars 107.8m, mostly related to provisions against the value of the group's UK property portfolio, held through Markheath, a 61 per cent subsidiary.

'Adsteam directors have deemed it prudent to make a one-off full provision against the group's Markheath involvement,' Mr Haines said. Mark-heath's discussions with its banks were 'proceeding constructively'.

Other companies in the group also fared badly. David Jones, the up-market retailer, lost a net ADollars 59m, compared with ADollars 53m, and Tooth and Co, the industrial group, lost a net ADollars 58m, compared with ADollars 40.5m.

The bright spot was Industrial Equity (IEL), owned by Adelaide Steamship, David Jones and Tooth, which re-ported an improvement in net profit to ADollars 79m from ADollars 27m.

IEL said the improvement would have been larger but for the ADollars 19m cost of deferring the flotation of its Woolworths supermarket subsidiary, and ADollars 6.4m in other abnormal charges.

Adelaide Steamship Co David Jones Tooth and Co Industrial Equity AU Australia P44 Water Transportation P53 General Merchandise Stores P6719 Holding Companies, NEC FIN Annual report P44 P53 P6719 The Financial Times London Page 31 320
International Company News: Warning over Indonesian banks Publication 930316FT Processed by FT 930316 By WILLIAM KEELING JAKARTA

INDONESIA'S listed banks have mostly announced an increase in pre-tax profits for 1992, although bankers warn the sector remains poorly regulated and burdened by non-performing debt.

Of the six largest listed banks, five improved on their 1991 performance. Pre-tax profits at Bank Internasional Indonesia (BII) rose 62.4 per cent to Rp122.1bn (Dollars 59m), while Lippobank's increased to Rp53.6bn from Rp24.6bn a year earlier.

Bank Danamon's pre-tax profits rose from 11 per cent to Rp51bn, Bank Bali's increased from 17.6 per cent to Rp84.1bn, and Bank Niaga's grew 12 per cent to Rp36.5bn. Bank Duta was alone in seeing a pre-tax profit fall from Rp35.9bn in 1991 to Rp26.2bn last year. In a year of general consolidation in the Indonesian banking sector, which remains dominated by five state-owned banks, the growth in the listed banks' outstanding loans either slowed or, in two instances, was reversed.

Bank Danamon's loan portfolio grew most rapidly to Rp3,600bn from Rp2,950bn in 1991, while Lippobank's loans rose 17.5 per cent to Rp2,150bn.

Bank Bali and Bank Duta posted a marginal fall in outstanding loans, down 7 per cent to Rp1,960bn and 4.5 per cent to Rp1,700bn respectively.

Brokers say the banks are more bullish for growth next year. BII forecast a 50 per cent loan growth this year, after an 8 per cent rise to Rp3,680bn in 1992.

Lippobank and Bank Bali are forecasting loan growth in excess of 20 per cent, while Bank Niaga is anticipating a more modest 15 per cent rise. The government has forecast a 17 per cent rise in banking sector credit this year.

Brokers, however, warn that higher net profits and an increase in credit may flatter the banks' actual performance. The results need to be accompanied by a now-perennial warning that banks may be under-provisioning for non-performing assets, they say.

Banks should be providing a minimum of 2.3 per cent of productive assets for non-performing assets, brokers say, but they believe that none of the listed banks reaches this figure.

In the worst case, brokers estimate that one of the six is providing less than 1 per cent of its productive assets. An increase in provisions to 2.3 per cent would wipe out twice-over the bank's 1992 net profits.

Banks anticipating high credit growth this year will also need to watch their capital adequacy ratios. Brokers estimate all the six listed banks to have capital adequacy ratios in excess of 7 per cent of risk weighted assets, a level set by the central bank for the end of this month.

But if the banks meet their targets for credit growth, most will need to raise new capital by the end of the year.

Brokers say this could lead to a call on shareholders for new finance or restricted dividend payments to allow banks to retain profits and boost their capital base.

Bank Internasional Indonesia Bank Danamon Bank Bali Bank Niaga Bank Duta ID Indonesia, Asia P602 Commercial Banks FIN Annual report P602 The Financial Times London Page 31 516
UK Company News: Gearing surprise as Laporte drops 10% Publication 930316FT Processed by FT 930316 By PAUL ABRAHAMS

LAPORTE, the speciality chemicals group, yesterday reported pre-tax profits down 10 per cent, from Pounds 96.4m to Pounds 86.6m, for the year to January 3.

The shares fell 9p to 676p, as analysts were surprised by the group's gearing. Although debt at the year end had been Pounds 125.6m, Mr Ken Minton, chief executive, said during a presentation to analysts that it had deteriorated since January to about Pounds 190m.

Most of the deterioration - about Pounds 25m - had been caused by adverse currencies and in particular the rise of the dollar. Debt at Evode, a recent acquisition, had been higher than expected (Pounds 10m) and the group had bought about Pounds 8m of Evode's shares during the takeover. A further acquisition (Pounds 5m) and seasonal changes (Pounds 6m) had added to debt. Mr Minton said the group would be cash-positive during 1993.

Mr Minton said the results had been in line with predictions and that he felt pretty good about the prospects for Evode and the group generally.

The results were achieved on turnover down from Pounds 616m to Pounds 608m. The pre-tax profits included Pounds 9.6m from the Interox business which was sold on May 21. Sales of Interox until that date were Pounds 74m.

The organic speciality division's operating profits were Pounds 15.8m (Pounds 4.9m) on turnover up from Pounds 33.6m to Pounds 81.7m thanks to the acquisition of the peroxy speciality business at Interox. The existing business increased from Pounds 33.6m to Pounds 41m. The peroxy business added Pounds 9.4m to the profits.

Sales at the absorbents division increased 12 per cent from Pounds 81m to Pounds 90.8m, while trading profits rose from Pounds 11.7m to Pounds 12.1m. Mr Minton said the figures masked a distinct improvement in margins during the second half of the year from 10.7 per cent to 15.9 per cent. The improvement was due to significant investment and rationalisation.

The construction chemicals division reported operating profits up 69 per cent from Pounds 10.6m to Pounds 17.9m on sales of Pounds 141.1m (Pounds 105.9m). Rockwood, a recent acquisition, generated Pounds 25.7m of the Pounds 35.2m increase in turnover.

The hygiene and process chemicals division posted trading profits up 14 per cent from Pounds 14.1m to Pounds 16.1m on sales of Pounds 96.3m (Pounds 89.3m). The metals and electronic chemicals division's turnover was up 3 per cent from Pounds 94.4m to Pounds 97.5m. Operating profits fell 7 per cent from Pounds 15.2m to Pounds 14.2m.

Capital expenditure, which the company described as heavy, was Pounds 74m.

Earnings per share fell 2 per cent from 40p to 39.2p. The board proposed a final dividend of 12.5p, making a total for the year of 19.5p (18.9p), a rise of 3 per cent.

Laporte GB United Kingdom, EC P2819 Industrial Inorganic Chemicals, NEC P2869 Industrial Organic Chemicals, NEC FIN Annual report P2819 P2869 The Financial Times London Page 24 501
UK Company News: William Bedford losses rise to Pounds 0.27m Publication 930316FT Processed by FT 930316

With insufficient turnover to make use of its showrooms and ancillary services 1992 pre-tax losses at William Bedford, the antique dealer and restorer, increased from Pounds 210,000 to Pounds 272,000.

The USM-quoted company added that unless there was an unforeseen increase in turnover the present year would again be difficult.

Turnover was Pounds 1.57m (Pounds 1.63m). Losses per share were 5p (2.6p).

William Bedford GB United Kingdom, EC P5932 Used Merchandise Stores FIN Annual report P5932 The Financial Times London Page 24 98
UK Company News: Timber surge benefits Unigroup Publication 930316FT Processed by FT 930316

Unigroup, the building materials manufacturer and distributor, lifted pre-tax profits from Pounds 304,000 to Pounds 466,000 in the six months to December 31.

The result reflected an upsurge in profits from the timber products division and also the cessation of activities on the clothing side where an operating loss of Pounds 122,000 was recorded in the 1991 interim period.

Turnover advanced from Pounds 11.6m to Pounds 12.7m and operating profit from Pounds 562,000 to Pounds 845,000. Sales in the timber products division increased from Pounds 4.46m to Pounds 7.71m and operating profits from Pounds 670,000 to Pounds 797,000.

Earnings per share were up from 0.58p to 1p.

Unigroup GB United Kingdom, EC P08 Forestry P5039 Construction Materials, NEC FIN Interim results P08 P5039 The Financial Times London Page 24 142
UK Company News: Metalrax maintains growth with Pounds 7.3m Publication 930316FT Processed by FT 930316

Metalrax Group, the specialist engineer, continued its growth in the year to December 31 with pre-tax profits ahead from Pounds 7.21m to Pounds 7.31m, on turnover 4.6 per cent lower at Pounds 60m.

With a higher tax charge of Pounds 2.36m (Pounds 2.27m), earnings per share were marginally down at 6.81p (6.93p); but the total dividend goes up from an equivalent of 3.55p to 4p with a recommended final of 3p. A 1-for-10 scrip issue is also proposed.

Metalrax Group GB United Kingdom, EC P25 Furniture and Fixtures P308 Miscellaneous Plastics Products, NEC P34 Fabricated Metal Products FIN Annual report P25 P308 P34 The Financial Times London Page 24 124
UK Company News: United Uniform climbs to Pounds 3.65m Publication 930316FT Processed by FT 930316

Although 1992 proved to be a more difficult year than anticipated 12 months ago, United Uniform Services, maker of fitted uniforms and corporate clothing, raised pre-tax profits by 7 per cent from Pounds 3.4m to Pounds 3.65m in 1992.

Turnover rose 6 per cent to Pounds 57.1m. Earnings per share were 10.9p (10.1p) and the dividend total is maintained at 3p with an unchanged final of 2p.

The company is to change its name to that of its principal subsidiary, Horace Small Apparel.

United Uniform Services GB United Kingdom, EC P12 Coal Mining P23 Apparel and Other Textile Products FIN Annual report P12 P23 The Financial Times London Page 24 125
UK Company News: Record declines to Pounds 1.25m Publication 930316FT Processed by FT 930316

Pre-tax profits at Record Holdings, the maker of hand and bench tools, plunged from Pounds 3.35m to Pounds 1.25m in 1992.

Group turnover increased to Pounds 28.5m (Pounds 26m) with exports up more than a quarter, while UK sales declined to Pounds 16m, against Pounds 16.2m.

Redundancy costs increased sharply from Pounds 132,000 to Pounds 891,000 as the group lost more than 100 employees.

It made an exceptional provision of Pounds 395,000 against the cost of transferring plant from Warrington to Sheffield, which was partly offset by Pounds 134,000 exceptional profits (losses Pounds 189,000) on disposal of property in Canada.

The board proposes to hold the final dividend at 2.45p maintaining the total for the year at 3.6p uncovered by earnings per share of 2.2p, compared with 6.9p last time.

Record Holdings GB United Kingdom, EC P354 Metalworking Machinery FIN Annual report P354 The Financial Times London Page 24 163
UK Company News: Whitegate Leisure in the black Publication 930316FT Processed by FT 930316

IMPROVED trading, lower interest rates and the disposal of its loss-making French businesses enabled Whitegate Leisure to return to the black in the six months to February 28.

Pre-tax profits of Pounds 682,000 for the period compared with losses of Pounds 1.51m last time and a Pounds 3.03m deficit for the 8 months ended August 31 1992.

Whitegate's core business - mass market leisure in the Midlands and the north of England - performed better, but turnover was still suffering as a result of low levels of general economic activity. UK leisure profits rose to Pounds 3.37m (Pounds 2.3m) on turnover of Pounds 10.4m (Pounds 8.7m).

The USM-quoted company said it continued to offer its healthcare businesses for sale and considerable interest was being shown. These operations turned in profits of Pounds 103,000 (Pounds 3,000 losses).

Last year's group losses were after an exceptional charge of Pounds 784,000 for restructuring costs and write down of assets. Interest took Pounds 1.66m (Pounds 1.98m) and earnings per share were 2.4p (5.6p losses).

Whitegate Leisure GB United Kingdom, EC P7999 Amusement and Recreation, NEC FIN Interim results P7999 The Financial Times London Page 24 205
UK Company News: BM poised for losses after heavy write-downs Publication 930316FT Processed by FT 930316 By JANE FULLER

BM Group, the construction equipment and engineering concern, is likely to fall into the red this year after substantial losses on business disposals and other write-downs.

The group announced yesterday that it would take an exceptional loss of about Pounds 13m on the recent sale of Blackwood Hodge UK and Spain to International Machinery Company.

The share price, which collapsed last summer after the departure of the chairman Mr Roger Shute, fell 6p to 54p yesterday.

A root-and-branch review has been carried out under the new chairman Mr Moger Woolley, with the help of a new merchant bank - Robert Fleming has replaced Hambros - and new auditors - Price Waterhouse for Kingston Smith.

Analysts estimate that exceptional losses could run to Pounds 20m-Pounds 30m. This would push the group into the red even before interest costs on trading profits thought to be running at Pounds 15m-Pounds 20m for the year to June 30. Last June net debt stood at Pounds 61.1m.

The interim results have been delayed until April.

BM Group GB United Kingdom, EC P3531 Construction Machinery P27 Printing and Publishing COMP Company News P3531 P27 The Financial Times London Page 24 213
UK Company News: HSBC doubles to Pounds 1.7bn - Strong growth in Hong Kong and Asia Pacific operations Publication 930316FT Processed by FT 930316 By JOHN GAPPER and SIMON HOLBERTON

STRONG PROFITS in Hong Kong and the Asia Pacific region helped HSBC Holdings to raise pre-tax profits by 94 per cent in sterling terms to Pounds 1.7bn for 1992 compared with Pounds 880m.

The increase expressed in Hong Kong dollars was 56 per cent to HKDollars 20.1bn (HKDollars 12.8bn).

Asia Pacific operations made a Pounds 1.3bn pre-tax profit (Pounds 878m). They contributed Pounds 430m of the rise in pre-tax profit, helped by an exceptional profit of Pounds 270m on the sale of a 10 per cent stake in Cathay Pacific Airways.

The charge for possible bad debts more than doubled to Pounds 1.19bn (Pounds 502m) after taking in Pounds 321m attributable to Midland, Pounds 297m from Olympia and York, and Pounds 90m from Concord Leasing, Pounds 49.5m of which relates to shipping loans.

Provisions against Olympia and York now amount to 60 per cent of the Pounds 500.1m exposure. Mr John Bond, chief executive, said it was 'extremely unlikely that we would take another stand alone position like that in the future'.

Sir William Purves, chairman, said that although economic growth in Asia had been robust, recession in several of its markets made 1992 quite a difficult year and resulted in 'a significant increase in the level of provisioning'.

Sir William said this would be 'a year of consolidation' for Midland. 'The highest priority is for Midland to get its domestic retail business firing on all cylinders, and to improve service to customers," he said.

HongkongBank's profit attributable to shareholders after tax and exceptional items rose to Pounds 1.01bn (Pounds 599m). Hang Seng Bank, in which HongkongBank has a 61.4 per cent shareholding, contributed Pounds 486m (Pounds 311m).

Both Marine Midland, the US subsidiary, and HongkongBank of Australia returned to profit. Marine Midland showed a profit of Pounds 79.3m (Pounds 94.9m loss), while HongkongBank of Australia made a profit of Pounds 3.5m (Pounds 18.4m loss).

Profits of James Capel, the group's stockbroking subsidiary, fell to Pounds 7.6m (Pounds 17.7m), after restructuring and other charges. European results were 'disappointing,' while Asia and the US were 'highly profitable'.

Net interest income grew to Pounds 3.34bn (Pounds 1.84bn) and other operating income grew to Pounds 2.63bn (Pounds 1.2bn).

Despite a rise in operating expenses to Pounds 3.37bn (Pounds 1.78bn) the cost to income ratio fell to 56.6 per cent (58.4 per cent).

The group's ratio of capital to risk-weighted assets stayed constant at 12.3 per cent, although its tier 1 capital ratio fell to 7.4 per cent (9.6 per cent).

Its property revaluation reserve under tier 2 capital rose to Pounds 1.05bn (Pounds 381m).

Earnings per share were 72 per cent up at 62p (36p).

The final dividend is 14.2p, increasing the total to 19p (12.71p).

Shareholders' funds rose to Pounds 8.01bn (Pounds 4.82bn) and assets grew to Pounds 170.5bn (Pounds 85.79bn). The return on average assets rose to 1 per cent (0.7 per cent).

HSBC's 75p ordinary shares closed 20p higher at 624p.

See Lex

HSBC Holdings GB United Kingdom, EC P6719 Holding Companies, NEC P602 Commercial Banks FIN Annual report P6719 P602 The Financial Times London Page 24 547
UK Company News: Turnround in exceptionals behind 25% decline at ECC Publication 930316FT Processed by FT 930316 By MAGGIE URRY

PRE-TAX PROFITS at English China Clays, the industrial minerals and construction materials group, fell 25 per cent in 1992 to Pounds 86.2m, compared with Pounds 115.4m for the previous year.

There was an exceptional charge of Pounds 14.3m, against a credit of Pounds 2.2m, mainly relating to the write down of housing land announced in September. Group sales fell 4.5 per cent to Pounds 966.3m.

Lord Chilver, chairman, said the European markets were 'unlikely to show much progress' in 1993, but there were signs of recovery in the US.

He said the group expected to at least maintain the dividend in 1993 at the 1992 level of 20p, itself unchanged from 1991. The shares rose 5p to 458p.

Mr Andrew Teare, chief executive, said there had been 'intense pressure from customers for substantial price reductions' as the paper industry, the main user of china clay, struggled with overcapacity. He said ECC had resisted and volumes had been maintained.

He said the group was in the middle of a five year programme to change the company around. 'We have done all the obvious things' he said, such as cutting costs, selling businesses and sorting out the balance sheet.

The group was now the world's leading supplier of kaolin following the purchase of Georgia Kaolin in the US, at the end of 1990.

The next step was to seek out business opportunities, such as expanding sales into the Pacific area, supplied from the US, and developing new uses for its industrial minerals.

Operating profits from ECC International fell to Pounds 90.5m (Pounds 97.7m), although sales were marginally higher at Pounds 589.8m.

Profits from construction materials, largely hard rock used in road building, fell to Pounds 15.3m (Pounds 24.1m). Sales rose 2.4 per cent to Pounds 352.4m, as strong volumes were offset by price weakness.

The housebuilding division, now being wound down, contributed Pounds 8.3m (Pounds 14.3m) in profits, and generated cash of Pounds 18.6m (Pounds 23.8m) as land was sold. Since 1990 Pounds 52m had been raised from this division, and the total could reach Pounds 200m.

The interest charge was Pounds 5.4m (Pounds 16.5m) following the Pounds 209.2m rights issue last year. Net debt rose by Pounds 40.3m to Pounds 172.8m, 21 per cent of shareholders funds. The translation of overseas debt at lower sterling rates added Pounds 45.2m to debt.

Earnings per share fell 30 per cent to 21.87p. An unchanged final dividend of 13.4p is proposed.

Under FRS 3, which the group will apply to its published accounts, pre-tax profits rose from Pounds 79m to Pounds 100.2m, mainly because of the reclassification of an extraordinary profit of Pounds 16m. Earnings per share were 27.26p, up from 15.09p.

See Lex

English China Clays GB United Kingdom, EC P32 Stone, Clay, and Glass Products FIN Annual report P32 The Financial Times London Page 24 493
UK Company News: Sterling's collapse helps MAI advance by 12% to Pounds 33.9m Publication 930316FT Processed by FT 930316 By HUGH CARNEGY

MAI, the financial services and media group headed by Lord Hollick, the Labour peer, increased pre-tax profits by 12 per cent to Pounds 33.9m in the six months to December 31, against Pounds 30.2m.

The core money and security broking business was again the main engine, accounting for all but Pounds 25m of turnover, which was up 9 per cent at Pounds 204.5m (Pounds 187.2m). Broking operating profit was up 16 per cent at Pounds 21.9m (Pounds 18.8m) in what analysts described as peak conditions with governments worldwide seeking financing for deficits.

With 60 per cent of profits accruing overseas, mostly in dollars, the company benefited from the sterling crash following 'Black Wednesday' last September.

Lord Hollick said translation was at an average of Dollars 1.69, compared with Dollars 1.75 for the 1991-92 year. With the rate now running at about Dollars 1.43, the benefit would be greater in the second half, he said.

MAI added, however, that profits had been held back by a sharp decline in foreign exchange activity in the Far East, particularly Japan, where there was no sign of a sustained improvement.

Meanwhile, Lord Hollick declined to comment on his relations with fellow directors at Mirror Group Newspapers. He has distanced himself from a recent statement from the board expressing support for the current management but refused to be drawn on reports that he might resign. 'I am still a director,' he said.

He was more forthcoming about Meridian Television, which won the south of England ITV franchise with a Pounds 36m bid and began broadcasting on January 1.

He said advertising and audience figures were slightly ahead of target. It was premature to speak of a sustained upturn in TV advertising, but prospects seemed good.

MAI is investing Pounds 30m most of which has already been spent, with a targeted profit for the company in 1994.

Profits increased at the Wagon used car finance company, the mainstay of retail financial services, despite sluggish motor sales. Analysts said Wagon had increased its market share and appeared to have overcome the worst of its bad debt problems. Wagon said it had refinanced more than Pounds 200m of bank loans on a medium term basis.

Profits in the information side, which includes the NOP market research organisation, were also well ahead at Pounds 2.1m, compared with Pounds 1.2m, on turnover of Pounds 25.4m (Pounds 22.9m).

The interim dividend is raised to 2p (1.4p) to reduce disparity. Earnings per share were 6.5p (5.8p).

MAI GB United Kingdom, EC P6111 Federal and Federally-Sponsored Credit Agencies P6211 Security Brokers and Dealers P27 Printing and Publishing FIN Interim results P6111 P6211 P27 The Financial Times London Page 24 468
UK Company News: Traffic side bolsters Peek Publication 930316FT Processed by FT 930316 By HUGH CARNEGY

PEEK reported pre-tax profits up 18 per cent, from Pounds 6.06m to Pounds 7.13m for 1992, on turnover ahead 6 per cent from Pounds 84m to Pounds 88.8m, despite a setback in its field data business.

The traffic division, which includes systems for junction signals and road offence monitoring in the US, Europe and the Far East, saw operating profit rise 75 per cent to Pounds 6.6m (Pounds 3.77m). Most of this was attributable to acquisitions - notably of four companies in Denmark, Finland, Norway and Sweden - which helped push turnover up 56 per cent to Pounds 54.1m (Pounds 34.6m).

Results for the field data side declined with sales of Pounds 34.8m (Pounds 49.5m) and operating profit of Pounds 2.12m (Pounds 3.54m). Peek said this was due to weak performance of Peek Measurement, which produces measuring equipment for the petrochemical and water industries in Europe.

Earnings per share advanced to 4.2p (3.6p) and an unchanged final dividend of 2.35p is recommended for a maintained total of 3.4p.

Mr Allen Standley, group managing director, said he was relatively cautious about 1993, noting there was a reluctance in the present economic climate in Europe for customers to make commitments to big capital investments such as traffic systems. He predicted profits growth in single figures this year.

Peek was optimistic, however, about prospects for growth over the next decade, particularly in 'smart' traffic systems which increase efficiency of road use. It is looking to expand in the Far East and has negotiated a 41 per cent holding in a control systems company based in Chengdu, China.

Mr Standley said Peek was also planning to concentrate on producing strong growth in its field data side. This will come through its wholly-owned Husky computers subsidiary, which last year introduced two new 'rugged' computers and increased turnover and profits.

Peek GB United Kingdom, EC P3679 Electronic Components, NEC FIN Annual report P3679 The Financial Times London Page 24 339
Companies in this issue Publication 930316FT Processed by FT 930316

---------------------------- UK ---------------------------- Abbott Mead Vickers 26 Airtours 23 Amersham Intl 26 Aminex 26 Antofagasta 27 Argos 27 BM 24 BPP 26 Baring Securities 23 Bedford (William) 24 Claremont Garments 27 Clark (C&J) 27 Delta 26 EBRD 15 English China Clays 24 European Leisure 27 FII 27 General Accident 48 HSBC Holdings 48 IMI 26 J Sainsbury 15 JIB 27 Laporte 24,15 MAI 24,15 Metalrax 24 Midland Bank 23 Nichols (JN) (Vimto) 24 Owners Abroad 48,23 Peek 24 Ramus 27 Ransomes 27 Record 24 Rugby 26 Sharelink 15 Takare 27 The Telegraph 27 Thomas Cook 23 Tuskar Resources 26 Unigroup 24 United Uniform 24 Wassall 26 Whitegate Leisure 24 Wiltshire Brewery 26

---------------------------- Overseas ---------------------------- Adsteam 31 Aerospatiale 30 Astra 31 Avesta Sheffield 28 BASF 29 BII 31 Bank Bali 31 Bank Danamon 31 Bank Duta 31 Bank Niaga 31 Barings 28 Bayer 29 Bongrain 28 Brierley Invs 29,31 Cail 31 Credit Lyonnais 29 Dassault Aviation 30 Deutsche Babcock 28 Euroc 28 General Motors 23 HSBC 23 Hoechst 29 Hongkong Bank 24 ISS 28 Inchcape Timuran 31 Lippobank 31 NTT 30 Nike 29 Nine Network 31 Olivetti 23 Pacific Dunlop 31 Pfizer 30 Time Warner 27 UAP 28 Volkswagen 23 Volvo 32 Vontobel 30 Westpac 31 ----------------------------

GB United Kingdom, EC P99 Nonclassifiable Establishments COMP Company News P99 The Financial Times London Page 23 233
General Motors says Lopez finally decides to leave Publication 930316FT Processed by FT 930316 By MARTIN DICKSON and CHRISTOPHER PARKES NEW YORK, FRANKFURT

GENERAL Motors announced yesterday that Mr J. Ignacio Lopez de Arriortua, its head of worldwide purchasing, had finally decided to quit GM, apparently to join Germany's Volkswagen, after a bizarre five days of wavering between the two companies.

Mr Lopez, one of the best-known figures in the US motor industry, appeared to have decided over the weekend to remain at GM. The US company even scheduled a press conference yesterday afternoon to announce this and to say he had been promoted to executive vice-president of the company and president of its North American automotive operations.

However, Mr Jack Smith, GM chief executive, told the news conference that a friend of Mr Lopez had submitted a letter of resignation from him at lunchtime yesterday. The letter offered no explanation for his move. Mr Smith added: 'It is not clear to me what his intentions are or where he is at the present time.' However, he guessed that Mr Lopez would be joining Volkswagen with whom he signed a contract of employment last week.

Volkswagen seems likely to announce that Mr Lopez is joining the company after a meeting today of its supervisory board, which is expected to approve a management shake-up.

The news could also boost Volkswagen shares, which fell DM7.30 to DM285.50 yesterday when the German company appeared to have failed in its efforts to poach Mr Lopez.

GM's failure to keep Mr Lopez is a blow to its efforts to slash its car manufacturing costs in North America, where the company has lost Dollars 12bn (Pounds 8.4bn) over the past two years. Mr Lopez led a team which demanded big price cuts from parts manufacturers and offered them workshops to improve their manufacturing techniques.

The reasons for his vacillation and ultimate departure from GM remained unclear yesterday, though several factors appeared to have played a role.

GM acknowledged that it had sought to keep him last Thursday by offering him the promotions which were to be announced today. In spite of these new positions, which would have given him substantial power over all North American manufacturing operations, Mr Lopez initially decided to join Volkswagen.

He appeared to change his mind after meetings with members of his purchasing staff and further weekend discussions with Mr Smith. Mr Lopez had not asked for anything, but had been weighing up personal considerations.

Mr Smith said Mr Lopez had told him at one point that his family wished to return to Europe and he had a contract with Volkswagen.

The GM chief executive acknowledged that Mr Lopez, who hails from Spain's Basque country, had been urging the construction of a plant there using manufacturing techniques, capable of assembling a car in only 10 hours. However, GM had decided not to go ahead with such a project at the present time.

Whirlwind, Page 20

General Motors Corp US United States of America P3711 Motor Vehicles and Car Bodies COMP Company News PEOP Personnel News Ignacio Lopez de Arriortua, Head of Worldwide Purchasing General Motors Corp P3711 The Financial Times London Page 23 532
HSBC leaps 94 per cent Publication 930316FT Processed by FT 930316

HSBC Holdings yesterday announced a 94 per cent rise in 1992 pre-tax profits to Pounds 1.7bn, from Pounds 880m the previous year, following its acquisition of Midland Bank last July.

The strongest increase in profits came from operations in the Asia Pacific, which contributed Pounds 1.3bn of pre-tax profit. American operations incurred a pre-tax loss of Pounds 24m, while European operations made a Pounds 303m pre-tax profit.

HSBC disclosed a Pounds 297m provision against its exposure to Olympia & York, the property developer, and made a Pounds 321m provision on Midland loans. The O&Y provision amounts to 60 per cent of the bank's Pounds 500.1m exposure to the company.

The bank's earnings per share rose 72 per cent to 62.07p (36.6p). It declared a final dividend of 14.2p, making a total of 19p, a 50 per cent increase on 1991.

Lex, Page 22; Details, Page 24

HSBC Holdings GB United Kingdom, EC P602 Commercial Banks FIN Annual report P602 The Financial Times London Page 23 176
Thomas Cook buys 8.4% of Owners Publication 930316FT Processed by FT 930316 By RICHARD GOURLAY

THOMAS Cook, the German- controlled travel agency, yesterday bought an 8.4 per cent stake in Owners Abroad, the holiday company defending a hostile bid from rival Airtours.

The purchase may prove to be decisive in ensuring that Owners Abroad retains its independence, allowing it to progress with its proposed commercial tie-up with Thomas Cook, and its sister company, LTU, the German tour operator.

Last night Owners Abroad and Airtours were awaiting the decision of Gartmore, a 7.6 per cent shareholder in Owners Abroad. The offer closes at 1pm today.

Advisers to Owners Abroad said Thomas Cook had bought the shares from a variety of institutions at a cost of about Pounds 21m.

Thomas Cook's offer of 152.5p was aimed at investors who were believed likely to accept the offer, they said.

Gartmore was understood to have sold some of its stake to Thomas Cook.

A spokesman for Gartmore would not comment on whether it planned to to accept the Airtours offer.

Airtours also yesterday produced new information on the cost savings it expects to make from a merged Owners and Airtours.

It said it hoped to make Pounds 20m savings in the full 1993-94 financial year and the same the following year.

These figures compared with Owners Abroad's assessment of benefits from its tie-up with Thomas Cook of Pounds 9m and Pounds 11m in the two years.

Mr David Crossland, Airtours chairman, said Pounds 8m of savings would come from an average 2 per cent saving on the purchasing of bed nights.

A further Pounds 4m saving would come from a car rental deal in the US. Other savings would come from passenger handling, and economies in running the two airlines.

Mr Howard Klein, Owners Abroad chairman, described Airtours statement as a 'a last minute response to a glaring omission in its arguments to date'.

He said Owners' brands had limited overlap with Airtours. Airtours appeared to have ignored the effect of loss of market share which would occur if its bid were successful, the company said.

Lex, Page 22

Thomas Cook and Sons Owners Abroad Group GB United Kingdom, EC P4724 Travel Agencies P4725 Tour Operators COMP Shareholding P4724 P4725 The Financial Times London Page 23 382
People: Non-executive directors Publication 930316FT Processed by FT 930316

Christopher Chataway has resigned from RADIOTRUST.

Radiotrust GB United Kingdom, EC P672 Investment Offices PEOP Appointments P672 The Financial Times London Page 17 32
People: Non-executive directors Publication 930316FT Processed by FT 930316

Sir James McKinnon, who steps down as director general of the Office of Gas Supply (Ofgas) in September, could soon pick up his first company chairmanship. He is replacing Sir Graham Day as deputy chairman of MAI, Lord Hollick's financial services and media group.

Sir James, 63, one of Britain's more combative regulators, announced last month that he was retiring a year earlier than planned. Sir James has known Sir Ian Morrow, who has been chairman of MAI since 1974, since their days together at the Scottish Institute of Chartered Accountants - of which they have both been president.

However, Sir Ian has turned 80 and now that Sir Graham has decided to relinquish the deputy chairmanship of MAI, Sir James, a former finance director of Imperial Tobacco, would seem a natural successor to the MAI chair. Sir Graham, chairman of Cadbury Schweppes, remains a non-executive director of MAI.

John Ashworth, director of the London School of Economics, is David Sainsbury's first non-executive appointment to the board since he took over as chairman of supermarket chain J Sainsbury last November.

Ashworth says that the directorship 'formalises' a long-standing involvement with David Sainsbury. Ashworth is a trustee of the Gatsby Charitable Foundation and the two families have known each other for years. He adds that, as far as he is aware, the Sainsburys have never given any money to the LSE.

Knowing 'nothing' about retailing, Ashworth, 54, says he has been recruited rather for his biological expertise with its application to food science. Starting out in the department of biochemistry at Leicester University, Ashworth subsequently became professor of biology at Essex. Before his nine year stint as vice chancellor of Salford University, he worked at Cabinet Office as chief scientist in the central policy review staff.

He notes that as a Gatsby trustee he has had a hand in evolving its policy towards plant science and in helping set up the Sainsbury laboratory which carries out research into disease resistance in plants.

MAI J Sainsbury GB United Kingdom, EC P5411 Grocery Stores P6719 Holding Companies, NEC P6211 Security Brokers and Dealers P873 Research and Testing Services PEOP Appointments P5411 P6719 P6211 P873 The Financial Times London Page 17 376
People: Founder Jones shares out top job Publication 930316FT Processed by FT 930316

Sharelink, Europe's largest execution-only stockbroker, has recruited Richard Fielding (right), former chairman of insurance brokers CE Heath, as non-executive chairman of the holding company.

Founder David Jones, who had combined the roles of chief executive and chairman, explains that since last May's management buy-out the company had said it intended to seek a non-executive chairman. 'It has just taken a long time to get around to it; we have all been very busy.'

Sharelink has grown rapidly during its six year existence; Jones claims it now sees up to 10 per cent of all stock market transactions in the UK, with a market share of 15-20 per cent of the country's private client business. He is already confident of being able to exceed 'significantly' this year's budgeted profit of Pounds 2.5m.

Fielding, 59, retired as chairman of CE Heath last July. Having risen to the position of managing director at the insurance broker in the early 1970s, he left to form his own company, Fielding Insurance Holdings. The latter was merged with Heath in 1986. Fielding became group chief executive and chairman the following year.

Approached for the Sharelink opening by headhunters, Fielding says he had never been headhunted before and that he 'enjoyed the novelty'. Jones, meanwhile, reckons his new chairman combines the 'right personal qualities and style' in addition to having the experience of building a business from scratch into a large organisation. 'And insurance is not a million miles from stockbroking - lots of paper, to begin with,' adds Jones.

Sharelink GB United Kingdom, EC P6211 Security Brokers and Dealers PEOP Appointments P6211 The Financial Times London Page 17 285
People: Associated Nursing Services Publication 930316FT Processed by FT 930316

Frederick Brown, formerly a director of Bank of Ireland Corporate Finance, has been appointed commercial director of ASSOCIATED NURSING SERVICES.

Associated Nursing Services GB United Kingdom, EC P805 Nursing and Personal Care Facilities P5122 Drugs, Proprietaries, and Sundries PEOP Appointments P805 P5122 The Financial Times London Page 17 58
People: British Gas Publication 930316FT Processed by FT 930316

David Wells, regional chairman of BRITISH GAS South Eastern, will be appointed md of regional services as from August 1 on the retirement of Arthur Dove. Last year he was seconded to be director of the MMC's task force into gas supply in the UK.

British Gas GB United Kingdom, EC P4923 Gas Transmission and Distribution PEOP Appointments P4923 The Financial Times London Page 17 74
People: Laporte Publication 930316FT Processed by FT 930316

William Hoskins, deputy finance director of LAPORTE, is to become finance director on the retirement on April 21 of Dick Dickinson, who has been with Laporte for 21 years and finance director since 1985.

Laporte GB United Kingdom, EC P2899 Chemical Preparations, NEC PEOP Appointments P2899 The Financial Times London Page 17 60
Management (The Growing Business): Rekindling the creative flame - The decline in Japan's entrepreneurial spirit may have far-reaching economic consequences Publication 930316FT Processed by FT 930316 By CHARLES LEADBEATER

Japan is facing a crisis of entrepreneurship. The sharp downturn in the Japanese economy has brought small business confidence close to the lows it reached at the depths of the 1975 recession caused by the rise in oil prices.

Small business bankruptcies are about 40 per cent up on a year ago, compared with about 4 per cent for large companies. Employment in family enterprises is falling at an annual rate of about 10 per cent a year, compared with a continued moderate rise in salaried employment at large businesses. This downturn comes after a lengthy period of stagnation in small business performance, with declining rates of start-up and falling labour and capital productivity.

Japanese small companies have been a vital spark of creativity in Japan. Many of the household names of Japanese manufacturing had their roots in entrepreneurial companies, founded after the second world war. The Honda Motor corporation started in a motorbike repair shop and Matsushita, the largest integrated electrical appliance maker in the world started as a small components manufacturer.

Small businesses are a vital source of flexibility, acting as sub-contractors to larger groups. They have also provided employment stability.

Between 1981 and 1991 the share of employment accounted for by small companies, employing less then 300 workers, was stable in construction and real estate and fell marginally in manufacturing, retailing, financial services, transport and services. About 80 per cent of the Japanese workforce is employed in small companies.

The stability of small businesses' share of employment in Japan has been one of the main reasons for the country's low unemployment rate which did not rise above 3 per cent in the 1980s. But there is mounting evidence that the economic downturn has hit Japanese small businesses at a time when they were already running out of steam. A combination of structural factors and the sharp cyclical downturn means small businesses could be facing a shake out which could have far-reaching consequences for the economy.

The rate of business start-ups declined from about 7 per cent of all enterprises in the early 1970s to close to 4 per cent in the late 1980s. The net rate of business creation, the number of openings minus the number of business closures, stands at just under 1 per cent, according to official statistics gathered by the Ministry of International Trade and Industry.

But even that understates the decline in entrepreneurship. Start-ups by independent entrepreneurs now account for less than half of new enterprises. The rest are subsidiaries of large businesses.

Moreover Japan's small businesses have gradually become less dynamic. In 1975 they were 62 per cent as productive as Japan's large companies. In 1990 they were only 50 per cent as productive, according to Miti figures.

One of the main reasons for the fall in labour productivity is that since the 1970s small businesses have been a vast 'labour-sponge' soaking up workers displaced from manufacturing companies. These have maintained their international competitiveness by streamlining their factories.

Now small companies are facing a number of pressures which will force them to restructure too, making it more difficult for them to soak up labour which is being shed from larger companies.

As small companies get about 60 per cent of their finance from banks, they are vulnerable to a more restrictive approach to lending by the banks which are burdened by mounting bad loans. Banks are taking a more cautious approach to lending to risky small businesses, after a rapid expansion of lending in the mid-1980s.

In manufacturing small sub-contractors will feel the brunt of moves by large companies to cut costs by lengthening product cycles and reducing the number of model variations. This means manufacturers will need fewer components made by fewer suppliers. Small businesses in manufacturing are heavily exposed as about 56 per cent of them are sub-contractors.

Small manufacturers generally make less sophisticated products than large companies and are thus more vulnerable to mounting competition from rapidly industrialising low-wage economies. Deregulation in retailing is making it more difficult for small companies to compete with large groups. Between 1988 and 1991, the number of large retail outlets grew by 9.4 per cent, compared with a fall of 1.8 per cent in the number of small shops, according to Miti.

Many small companies are trapped by the rise and fall of Japan's land prices. The rise in land prices during the speculative bubble economy of the late 1980s made it difficult for small companies to get started. However, small businesses which used land holdings as collateral to increase their borrowing now face a tight financial squeeze. According to Miti's estimates a 30 per cent fall in land prices would require small businesses to reduce their outstanding debts by about 27 per cent to maintain a constant ratio of debt to assets.

Commercial land prices have fallen by between 4 per cent and 20 per cent and are still falling, according to official surveys. The implication is that small businesses will have to devote a growing share of their earnings to paying off debts, rather than investing.

In the short term small businesses' hopes of salvation rest with the government. Small businesses are a vital source of support for the ruling Liberal Democratic Party. The government has begun to cushion them against a credit crunch imposed by the banks restricting their lending.

In February, the Ministry of Finance wielded its influence over the commercial banks by officially asking them not to refrain from lending to small businesses.

The government has also increased public lending to small businesses through the public sector Peoples' Finance Corporation and the Small Business Finance Corporation.

Bank of Japan statistics show public-sector lending is growing in an attempt to offset a sharp fall in the growth rate of bank lending to small companies.

At its height in 1987, commercial bank lending to small businesses grew by 18.7 per cent, while the Small Business Finance Corporation's lending contracted by 3.3 per cent. However, since 1990 the roles have been reversed. In 1990 commercial bank lending to small business grew by 11 per cent but public lending rose by almost 20 per cent. In June last year public lending was rising at an annual rate of about 8 per cent, while commercial lending was growing at only 1.3 per cent.

Yet the government will be less able to offset the slowdown in commercial bank lending than it was during past downturns. The rise in private-sector lending to small businesses in the 1980s means they are now more heavily dependent upon the banks. In 1983 public sector lending to small businesses was worth about 25 per cent of bank lending, but by last year this figure was only 13 per cent of the bank's outstanding loans.

Moreover, the rise in public-sector lending will do nothing to relieve the longer term problems - intensifying competition from the rest of Asia, weaker relationships with their main Japanese clients, sluggish domestic demand and weak balance sheets.

The waning of the entrepreneurial spirit is becoming a source of official concern. The government has just begun to address what could prove to be a prolonged period of restructuring. A recent Miti report on small businesses said: 'Considering the major contribution made by active business opening to boosting the country's industrial vigour, the decline in new start-ups, especially by individual entrepreneurs has come to a point where we really need to worry about its grave consequences for the future of the Japanese economy.'

JP Japan, Asia P99 Nonclassifiable Establishments MGMT Management CMMT Comment & Analysis P99 The Financial Times London Page 15 1293
Management (The Growing Business): A beginner's guide to raising capital - In a Nutshell Publication 930316FT Processed by FT 930316

The keys to raising venture and development capital are an able, experienced management team; a strong, marketable product range; and a concise and logical business plan.

Hints on raising equity finance are contained in a brief, beginner's guide* from accountants Moores Rowland.

*Raising Venture and Development Capital. 8 pages. Free. Moores Rowland, Clifford's Inn, Fetter Lane, London EC4A 1AS. Tel: 071 831 2345.

GB United Kingdom, EC P2741 Miscellaneous Publishing P99 Nonclassifiable Establishments TECH Products P2741 P99 The Financial Times London Page 15 102
Management (The Growing Business): Campaigning to spread the word - In a Nutshell Publication 930316FT Processed by FT 930316

The Management Charter Initiative, set up to improve the performance of the UK's managers, has launched a campaign to spread best practice in the field of small business initiatives.

The Managing for Growth campaign comprises the publication of recent research into small business problems, seminars and consultancy help. The aim is to ensure small business organisations do not 're-invent the wheel' but will be able to obtain information on schemes which are already working.

Among early examples of good practice identified by the MCI are a programme which provides high-level women managers as role models for their counterparts in small and medium-sized businesses and secondments of unemployed large company managers to small businesses.

MCI, Russell Square House, 10-12 Russell Square, London WC1B 5BZ. Tel: 071 872 9099.

GB United Kingdom, EC P99 Nonclassifiable Establishments COMP Company News P99 The Financial Times London Page 15 162
Management (The Growing Business): Commission comes under attack - In a Nutshell Publication 930316FT Processed by FT 930316

A two-pronged attack on the European Commission and on its directorate general for enterprise (DG23), for failing to do enough for small businesses, has been made by Ann Robinson, head of policy at the Institute of Directors.

The commission has failed to take into account the needs of small and medium-sized firms in devising the rules for the single market, while DG23 has proved a disappointment in defending their interests, she told an IOD small business conference in Belfast.

'The rules of single market appear to have been designed for big business and bureaucrats,' she said. 'Some of the most burdensome regulations for small firms have passed through the council of ministers without so much as a peep from DG23.'

GB United Kingdom, EC P99 Nonclassifiable Establishments GOVT Regulations CMMT Comment & Analysis P99 The Financial Times London Page 15 157
Management (The Growing Business): Conference call for small firms - In a Nutshell Publication 930316FT Processed by FT 930316

Business training, counselling and the impact of the Training and Enterprise Councils are among the themes to be considered at the 16th National Small Firms' Policy and Research Conference to be held at Nottingham Trent University on November 17-19.

The conference is the main UK small firms event for academics and small business practitioners. Summaries of proposed papers must be submitted by April 30.

Contact Conference Administrator, Commercial Centre, Nottingham Trent University, Burton Street, Nottingham NG1 4BU. Tel: 0602 486409.

GB United Kingdom, EC P99 Nonclassifiable Establishments COMP Company News P99 The Financial Times London Page 15 115
Management (The Growing Business): Cutting support for consultancy - In a Nutshell Publication 930316FT Processed by FT 930316

The government is to cut subsidies for the Enterprise Initiative Consultancy Scheme, which provides consultancy help in fields such as marketing, quality and design, Michael Heseltine, trade and industry secretary, said.

Support will be reduced from two-thirds to half of the cost to businesses in assisted and urban programme areas and from half to one third of the cost elsewhere, with effect from March 24.

When the consultancy scheme ends, as planned, in March 1994, it will be replaced with a programme delivered locally through 'one-stop shops' and Training and Enterprise Councils, Heseltine said last week in a written answer to a parliamentary question.

The new programme will consist of a diagnostic service, a consultancy brokerage and continuation 'in some form' of consultancy support and technology-related advice.

GB United Kingdom, EC P874 Management and Public Relations RES Capital expenditures TECH Services P874 The Financial Times London Page 15 165
Technology: Big science on the back burner Publication 930316FT Processed by FT 930316 By CLIVE COOKSON

The outlook has never been more uncertain for what were supposed to be the two biggest US science projects of the 1990s: the Dollars 30bn (Pounds 20.9bn) space station and an Dollars 8bn atom smasher, the superconducting super collider.

Although President Clinton favours both, many observers believe his commitment is far from wholehearted. They doubt whether he would invest much political capital in trying to save either project in the face of intense pressure from congressional budget-cutters.

According to John Gibbons, the new White House science adviser, big science projects may have been given too much urgency 'compared with other priorities in terms of our national recovery and putting in place an investment strategy for future economic progress'.

The Clinton administration's proposal for the SSC is to persevere with the existing plans to build the world's largest particle accelerator in an 86km tunnel beneath the plains of Texas, but to postpone the 1998 completion date by at least two years in the hope of defining more closely the complex equipment required and attracting international partners.

European nations will not contribute because they prefer to invest in their own accelerator at Cern, Geneva. Asian countries have resisted US requests to join the SSC and, even if Japan succumbs, foreign contributions are unlikely to come close to the Dollars 1.7bn originally expected.

There is no question about the SSC's scientific value, says Gibbons: 'They're trying to solve some eternal questions about the nature of matter.' By recreating on a small scale the conditions of the early universe soon after the Big Bang, physicists hope to gain a new understanding of fundamental forces and particles.

But cynics suggest Clinton's support for SSC may be more closely related to shoring up his reputation in Texas, where there is an election in May for the Senate seat vacated by Lloyd Bentsen, than to his interest in the origins of the universe.

In the case of the space station Freedom, Clinton has told Nasa to undertake a complete redesign to cut costs, currently estimated at Dollars 31bn. 'We want to take a fresh look at this and not just take the existing station and start peeling away the pieces,' said Daniel Goldin, Nasa administrator.

The space station has suffered several scaling-down exercises since President Reagan initiated the project in 1984, with the goal of having Freedom in orbit by 1994. The likely operational date has now slipped to 2000, although Nasa has already spent Dollars 8bn on preparatory work.

The latest design review and accompanying political uncertainties have left Freedom's supporters in Congress and the aerospace industry feeling confused and apprehensive.

'My biggest fear is that the whole programme could be lost if Congress votes against it when the new design is presented in June,' says Tom Williams of McDonnell Douglas. Space station contracts keep 2,500 people employed at the company's aerospace centre in southern California.

The fate of Freedom will have ramifications well beyond the domestic aerospace industry because the project has international partners, notably Japan and the European Space Agency. Their representatives are now in Washington working with Nasa's redesign team.

Esa plans to spend Dollars 2.9bn over the next seven years on its contribution, a manned laboratory to be attached to the main US space station. 'This could come out positively for Europe, if our support becomes more important to Nasa because they have to drop some of what they were planning to do,' says Daria Robinson of Esa. 'Or it could turn out negatively if the Americans cut down the project to the point where it is no longer interesting to take part.'

To keep its options open, Esa is also discussing co-operation on future space stations with Russia. Esa may provide a module for the Russian Mir-2 in the late 1990s.

But Nasa too is talking about bringing Russia into its plans and optimists believe there is now an opportunity of making the space station into a global project.

US United States of America P9661 Space Research and Technology P9611 Administration of General Economic Programs GOVT Government News P9661 P9611 The Financial Times London Page 14 700
Technology: Stoking up the engine - Bill Clinton has pledged to make technology a central focus of his administration. FT writers look at what the investment really means Publication 930316FT Processed by FT 930316 By LOUISE KEHOE

'THE GESTALT of the gigabit' is President Bill Clinton's new catchphrase for the high-technology focus of his administration. He has proposed a Dollars 17bn (Pounds 11.9bn) four-year plan for new and expanded federally-funded technology projects and tax incentives.

Creating new 'high-value jobs' is the primary goal of the Clinton technology policy, which the president unveiled during a visit to Silicon Valley last month. He called for the creation of a 'public-private sector partnership' that will generate investment in technology development and encourage the formation of high-tech companies.

We want to 'generate more of these kinds of companies, more technological advances to keep the US always on the cutting edge of change and to make sure that we'll be able to create a lot of good new jobs in the future,' the president told workers at Silicon Graphics, the computer workstation company where he unveiled his technology initiatives.

Almost 40 per cent of the proposed technology budget is in the form of research and development tax credits designed to encourage private-sector investment. Responding to industry demands, the president has proposed the tax credit be made permanent. Over the past few years the tax credit has been enacted each year, but only after it expired, so companies could not count on it when drawing up their R&D budgets.

The president's broader economic plan also includes tax incentives for long-term investment in small companies and some tax relief on capital investments for larger companies. However, the tax cuts will be at least partially offset by an increase in corporate tax rates.

On the spending side, the Clinton technology policy proposes a significant shift in the use of federal funds to back non-defence research. In the 1993 fiscal year, the civilian share of the total federal research and development budget was approximately 41 per cent, or Dollars 27.9bn, according to the administration. The president aims to increase this to more than 50 per cent, or Dollars 36.6bn by 1998.

In future, the US government will play a direct role in helping companies to develop and profit from innovations rather than funding defence or space missions that serendipitously provide 'spin-offs' for the commercial sector.

The flagship of the technology plan is the 'information superhighway' scheme; a nationwide high-speed broadband communications network linking businesses, schools, libraries, hospitals, government offices and, ultimately, homes.

Another example of 'industry-government partnership' in the Clinton technology policy is the advanced manufacturing initiative which will provide matching funds to industry consortia, using Sematech, the US semiconductor industry research group, as a model.

The federal government will also match state and regional funds to create a national network of 'manufacturing extension centres' that disseminate information on the latest manufacturing technology.

The National Institute of Standards and Technology's advanced technology programme will be significantly expanded to provide matching grants to industry-led research and development projects including consortia such as Sematech. Funding for Nist will be increased from Dollars 381m in 1993 to Dollars 1.2bn in 1997. Other national laboratories will also be drawn into the effort to boost industrial competitiveness.

The Clinton policy sets a target of 10 to 20 per cent of the budgets of the labs being devoted to research and development partnerships with industry. Clinton also aims to cut spending on 'big science' projects, while maintaining basic research as a high priority.

Although sceptical about how much impact these programmes will have, US high-technology industry executives are generally happy with the Clinton administration's increased focus on technology. 'We are pleased to see the new administration emphasising the high-technology segment as the key to rebuilding the manufacturing infrastructure of the US,' said William Reed, president of Semiconductor Equipment and Materials International, an industry trade group.

The president's leadership in establishing programmes and policy directions geared to advancing the development and use of technology will have more impact than the money being spent on technology policy, says Ed McCracken, president of Silicon Graphics.

The high-tech industry is also responding keenly to the president's call for industry-government co-operation. Semi, for example, is proposing a government-backed consortium to develop manufacturing technology for flat panel displays, such as those used in portable computers. Currently, Japan dominates this market.

The readiness of US high-tech industry groups to accept a more activist role by government is in some ways surprising. Silicon Valley, in particular, has long been known for its independent, entrepreneurial companies. 'There is still a cowboy spirit in Silicon Valley, we like to think we can take care of ourselves,' says McCracken.

Nonetheless, he believes that an 'arm's length' relationship between industry and government no longer makes sense. 'With the issues facing our country today, in particular the need to create jobs, I believe that we have to work together.'

Yet to be seen, however, is whether the policy will produce a net increase in employment. Although a sampling of almost 700 venture capital-backed start-up companies created over 22,000 jobs last year, according to a recent survey, total employment in the US electronics industry has declined in each of the past four years.

New companies are not creating jobs as fast as established companies are laying off workers. It is also evident that technology eliminates jobs - on the factory floor and in the office. Yet to remain competitive companies have to become more productive and cannot afford to be afraid of losing jobs, industry executives say.

'If you assume that those jobs are going to go away, then you have to deal with the problem. One of the things I like about the Clinton programme is that he seemed to be ready to tackle this issue,' says McCracken.

The ability to adjust to the rapid changes brought about by technology advances is one of the trademarks of a successful high-technology company. The government, Clinton says, must work more like that, adopting the philosophy of the high-tech industry, or the 'gestalt of the gigabit'.

'I believe my job as president is to try to adjust America so that we can win in the 21st century, so that we can make change our friend and not our enemy.'

----------------------------------------------------------------- Clinton's technology proposals (additional funds) 1994-97 ----------------------------------------------------------------- dollars m Nasa civil aviation and short-haul aircraft research 600 Dual-use technology for defence reinvestment and transition 1,331 Federal Co-ordinating Council for Science Engineering and Technology (research initiatives) 1,206 High-performance computing 784 National Institution of Standards and Technology 1,306 National labs (non-defence) 146 Information highways 275 National Science Foundation 2,297 Government automation and efficiency 2,649 Extend R&D tax Credit 6,437 ----------------------------------------------------------------- Total: 17,031 ----------------------------------------------------------------- Source: White House -----------------------------------------------------------------

US United States of America P9611 Administration of General Economic Programs P9661 Space Research and Technology TECH Technology RES Capital expenditures P9611 P9661 The Financial Times London Page 14 1152
Technology: Information superhighways Publication 930316FT Processed by FT 930316 By LOUISE KEHOE

The flagship of the Clinton technology plan is the development of 'information superhighways', a nationwide communications network.

Building on a programme established in 1991 by legislation sponsored by Vice-President Al Gore when he was in the Senate, the scheme is an ambitious effort to 'jumpstart' the construction of networks that the administration says: 'have the same effect on US economic and social development as public investment in the railroads had in the 19th century'.

Key elements of the plan include increased federal funding for R&D in supercomputers, high-speed networking and software and a programme to subsidise the construction of networking linking schools, hospitals and libraries.

Sensitive to charges that the programme is an example of 'high-tech pork', administration officials stress that the government will not award big contracts to one or two companies. 'We are trying to energise the private sector, create the competition that will ensure that the best technology gets out quickly and provide the leadership so that everyone is moving in the same direction,' says Mike Nelson of the Office of Science and Technology Policy.

Already, there has been an enthusiastic response to the information superhighways proposal in Silicon Valley, according to Ed McCracken of Silicon Graphics.

The local telephone and cable companies are accelerating plans to install high-speed lines. 'Potential uses of high-speed networks - in health, education and business - have become the subject of cocktail conversation,' he says.

US United States of America P9611 Administration of General Economic Programs P9661 Space Research and Technology TECH Technology RES Capital expenditures P9611 P9661 The Financial Times London Page 14 274
Parliament and Politics: Brown warns of cut in spending on unemployed Publication 930316FT Processed by FT 930316 By IVO DAWNAY, Political Correspondent

ANNUAL EXPENDITURE on the unemployed is due to fall to Pounds 565 per capita in 1993-94 or less than half the Pounds 1,188 a head spent when Mr John Major took office as prime minister in 1990, according to Mr Gordon Brown, the shadow chancellor.

Mr Brown told Labour's finance and industry group that the early release of the 1993-94 Supply Estimates, usually published on Budget day, had revealed a Pounds 100m cut in schemes to assist the unemployed and business.

Among the cuts were a 7 per cent reduction in the Training for Work initiative and a 14 per cent cut in the One Stop Business Services scheme. Other savings include a Pounds 10m cut in regional assistance and 15 per cent reduction in funding for business start-ups, now expected to total Pounds 133m.

Mr Brown's calculations on spending on the unemployed are based on adding the total allocations made through the Training and Enterprise Councils (Tecs) to special initiatives for the unemployed.

According to his figures, calculated at 1992-93 prices, the outturn in 1990-91 was Pounds 2.38bn compared to a forecast Pounds 1.69bn in the coming fiscal year. Over the period, total unemployment has risen by about 1m.

The Department of Employment last night said it had been unable to check Mr Brown's figures, but added that expenditure on the unemployed was due to rise by Pounds 177m - or 1 percentage point - in real terms in 1993-94.

Mr Brown was winding up Labour's three-month campaign for a 'Budget for jobs'. Restating Labour's goal of full employment, he used a leaked trade and industry department report on industrial competitiveness to underscore the need for intervention.

'Any Budget that does not begin to reverse that industrial decline by a long-term plan to tackle the critical failure to invest in people in industry and in our social and economic fabric is a Budget that will fail Britain,' he said.

Earlier, Mr Brown forecast that today's Budget would include another 'underfunded' temporary jobs programme, the 'reannouncing' of the Heathrow rail link, the sale of a further tranche of BT shares and the masking of petrol tax rises as 'help for the environment'.

GB United Kingdom, EC P8651 Political Organizations P9441 Administration of Social and Manpower Programs RES Capital expenditures CMMT Comment & Analysis P8651 P9441 The Financial Times London Page 13 412
Parliament and Politics: PM firm on summer target for Maastricht Publication 930316FT Processed by FT 930316 By PHILIP STEPHENS, Political Editor

MR JOHN MAJOR is sticking to his target of ratification of the Maastricht treaty by the end of July in spite of last week's defeat in the Commons.

Amid signs yesterday that some 'soft' Tory Euro-sceptics were reconsidering their opposition to the government, senior ministers said that the proposed timetable for the legislation still allowed for ratification before the summer recess.

The prime minister has told close associates he is determined that, if possible, Maastricht should not be allowed to wreck October's Conservative party conference for the second year in succession.

To avoid a damaging confrontation similar to that last year the bill would have to pass all the remaining hurdles - including the House of Lords - before the summer recess begins at the end of July.

The ministers acknowledged that the government still faced possible defeat on a number of opposition amendments. There remains a risk also that the legislation will be derailed if opposition parties are successful in pressing new amendments to remove Britain's opt-out from the social chapter.

But barring a dramatic setback on the social chapter, the plans now pencilled in by the government assume that the present committee stage of the legislation will be completed before the second Danish referendum on May 18.

That timetable is based on the fact that six groups of amendments have still to be discussed in the committee stage. Each of those could be expected to take one or at most two days in the Commons.

With two days a week allocated to the legislation, that implies a further five or six weeks in committee. Allowing for intervals necessitated by the Budget debate this week and for a two-week Easter recess, the committee stage would then be wound up in mid-May.

Ministers are increasingly optimistic that the report stage for the legislation - necessitated by the passage of opposition amendments - will be relatively short. That would provide for the concluding third reading debate by MPs to take place at the end of May or early in June. That in turn would give the House of Lords at least a month to debate the treaty.

The government acknowledges that a hard core of between 30 and 40 Tories will continue to harry the legislation at every opportunity. But an announcement yesterday by Mr George Walden, the former minister, that he would drop his opposition was seen as a signal that some Tory MPs who have previously abstained are now willing to support the bill.

GB United Kingdom, EC P9721 International Affairs GOVT Government News P9721 The Financial Times London Page 13 452
Parliament and Politics: Facing a cultural shift at the coalface - Miners' unions remain sceptical about changing work patterns Publication 930316FT Processed by FT 930316 By ROBERT TAYLOR

WORKPLACE reform is expected to be a vital ingredient in the government's white paper on the coal industry.

The viability of all Britain's pits, not just those facing immediate closure, will be seen to depend on the willingness of miners to accept sweeping new labour practices.

British Coal requires changing work patterns to cut deep-mine operating costs by 28 per cent over the next five years and raise output per man-shift from 5.95 tonnes to 9.37 tonnes by 1997-98.

Managers say this will mean a sharp break with the working culture that has dominated the industry since nationalisation in 1947. They want an end to what they see as an over-centralised bureaucratic structure where unions exercise substantial power over decision-making. The recent Commons trade and industry committee report stressed the need to reform working practices 'including the passing of any necessary legislation where this would reduce costs without compromising safety'.

The unions remain sceptical. They see reform as the end of the joint consultation system that gave them enormous influence in the workplace. British Coal wants more power for local managers.

The Department of Trade and Industry is pressing ministers for a repeal of the five-day-week agreement which sets the length of a miner's shift and the operating week from Monday to Friday.

'We would not seek to increase the amount of working time per man but to repackage it into fewer long attendances, some of which could be rostered for the weekend,' British Coal said in a private briefing paper. 'The colliery would work more intensively to achieve lower costs, but each man would not work more hours.'

It believes miners would not resist longer shifts and more flexible working patterns. British Coal believes, for example, that longer shifts are advantageous in the north-east where men face long travelling times to the coalface.

A 10-hour shift working the same basic hours over a period of eight weeks would mean a miner working 29 10-hour shifts as opposed to 40 shifts of 7 1/4 hours. This would give miners an extra 11 days off over the eight-week period and in a full year more than 60 additional days off.

British Coal also wants to amend the Mines and Quarries Acts to increase efficiency in administration by simplifying procedures without endangering safety. On top of this it is demanding repeal of section 46 of the Coal Industry Nationalisation Act which lays down joint consultation and conciliation procedures.

At present all unions are unenthusiastic but their members may be more willing to adapt. Certainly in the eight years since the miners' strike miners have shown their readiness to accept an enormous shake-up in the industry.

There has been a 79 per cent cut in manpower on the coalfields, with the loss of 135,000 men. The number of collieries has dropped from 133 to 50 while output per man shift has climbed from 2.72 tonnes to 5.31 tonnes.

British Coal argues that in a more decentralised, market-driven industry the working practice reforms could ensure that UK miners become even more competitive against those overseas. Only in this way, it says, can they expect to ensure the survival of their industry.

British Coal Corp GB United Kingdom, EC P12 Coal Mining GOVT Draft regulations PEOP Labour P12 The Financial Times London Page 13 577
Parliament and Politics: Review of female judges is urged Publication 930316FT Processed by FT 930316

Ms Teresa Gorman, MP for Billericay, urged a review of the criteria for appointing judges with a view to correcting the 'massive imbalance' between men and women.

Mr John Taylor, junior minister in the Lord Chancellor's Department, said the Lord Chancellor asked for women to be included on appointment lists where possible.

GB United Kingdom, EC P9211 Courts PEOP Personnel News GOVT Government News P9211 The Financial Times London Page 13 85
Parliament and Politics: MPs to see report on Church finance Publication 930316FT Processed by FT 930316

A REPORT on the finances of the Church of England by the accountants Coopers & Lybrand is to be published, MPs heard yesterday.

Mr Michael Alison, the Conservative MP for Selby - who represents the Church Commissioners in the Commons - gave the undertaking during oral questions. Publication date had not yet been determined, he told Mr Frank Field, Labour MP for Birkenhead.

The report was commissioned following criticism last year of the Church Commissioners' investment performance. Last July, the Financial Times reported that the commissioners had suffered Pounds 500m investment losses.

GB United Kingdom, EC P8661 Religious Organizations COMP Company News GOVT Government News P8661 The Financial Times London Page 13 127
Parliament and Politics: Peers resist leasehold rent move Publication 930316FT Processed by FT 930316 By ALISON SMITH

GOVERNMENT plans for leasehold reform survived a cross-party move to favour the tenants' interest yesterday, Alison Smith writes. Peers resisted by 162 votes to 117 - a government majority of 45 - a bid to remove the 'low rent' test from the proposals.

Last week, the government relied on cross-party support as it managed to fend off an attempt by more than 100 Tory backbench peers to lessen the impact on landlords. The peers sought to limit the reforms, which allow long leaseholders to buy the freehold of their properties, to resident leaseholders only.

An earlier move to end the provision that a property must be let at a low rent to qualify under the proposals was defeated in the Commons.

GB United Kingdom, EC P6513 Apartment Building Operators GOVT Draft regulations P6513 The Financial Times London Page 13 155
Parliament and Politics: Pits study piles pressure on British Coal Publication 930316FT Processed by FT 930316 By MICHAEL SMITH and ALISON SMITH

BRITISH COAL faces severe difficulties in closing Grimethorpe colliery - one of 10 pits where production has ended - after an independent consultant yesterday rejected its argument that the mine is financially unviable.

The support for the South Yorkshire colliery by John T Boyd, a consultancy appointed by the government, will add to British Coal's problems when it returns to the High Court probably next month to put its case for the closures.

Meanwhile it emerged yesterday that the cabinet is unlikely to discuss coal at its weekly meeting on Thursday. This raises the possibility that a white paper on the issue, promised last October after the government was forced to back down on plans to close 31 pits, will be delayed beyond next week.

The cabinet committee on coal will later this week be given an update on the DTI's latest proposals. It is likely to discuss problems posed by a further delay, not least for British Coal which has no contracts with electricity generators for coal sales after the end of this month.

Boyd, in its final report on the 10 pits earmarked for early closure, gave some comfort to British Coal by concluding that it was preserving the fabric of the collieries in accordance with an undertaking to High Court judges. The judges last year ruled that closure of the 10 was illegal and ordered that an independent scrutineer should assist on future decisions. Unions have rejected British Coal's and the government's contention that Boyd can provide that role.

Boyd's final report re-affirms its conclusion in an earlier draft that Grimethorpe failed to meet closure criteria because, according to Boyd, it was profit-making and could remain so. The pit could 'reasonably' be projected to be profitable, although performance would have to be improved over the next three years.

Boyd found that Taff Merthyr, another of the 10, did not meet BC's closure criteria because it could have been viable for several weeks longer. Boyd does not recommend re-opening it but says miners should be compensated for loss of earnings.

Boyd found Markham could become economically viable if there was weekend working and longer shifts, but the colliery would require an extensive amount of development and a 'substantial im-provement' in the work ethos.

Although miners at Grimethorpe will welcome the Boyd report, they will be hard-pressed to win their case that the mine stays open.

British Coal was placing considerable emphasis yesterday on Boyd's acknowledgement that the profitability of any operation is dependent on there being a market for its product. The white paper is unlikely to provide a market, and therefore a lifeline, for even half of the 31 threatened pits.

'The retention of Grimethorpe would be at the expense of another colliery with more realistic prospects of maintaining viable operations.'

For Labour, Mr Robin Cook, the shadow trade and industry secretary, said that the report showed Mr Heseltine had 'got it wrong again.'

'Last October he told parliament all 10 pits must close because they were clearly uneconomic. Now his own consultants have concluded he was wrong,' Mr Cook said.

Monktonhall Mineworkers, the consortium of miners which runs an Edinburgh colliery leased last year from British Coal, has agreed a five-year deal with ScottishPower to supply the electricity company with 100,000 tonnes of coal a year.

But it was not clear last night whether the contract, the second big order the company has won, would stave off a severe financial crisis caused mainly by delays in bringing the mine back into production.

It emerged at the weekend that the 160 miners, each of whom has invested Pounds 10,000 in the company, had gone without wages for seven weeks after Bank of Scotland refused to advance more loans.

British Coal Corp John T Boyd GB United Kingdom, EC P12 Coal Mining COMP Company News RES Facilities P12 The Financial Times London Page 13 668
Parliament and Politics: Hurd wins backing over call to China Publication 930316FT Processed by FT 930316 By PHILIP STEPHENS

A CALL from Mr Douglas Hurd, the foreign secretary, for the Chinese government to end the 'stalemate' over political reform in Hong Kong yesterday won rare all-party backing from the Commons.

His decision to combine support for plans by Mr Chris Patten, governor of Hong Kong, to extend democracy with a renewed invitation to China to restart negotiations was supported by both Labour and the Liberal Democrats.

With only a handful of backbench MPs challenging his strategy, the foreign secretary said that the 'talks about talks' with Beijing which broke down last week could resume at any time.

'We will continue to pursue steadily the path of co-operation with China: we look to the Chinese side to do the same,' he added. Mr Hurd said Britain's objective remained 'sensible arrangements for the future which could be continued after 1997'.

He was joined by Mr Jack Cunningham and Sir David Steel, his Labour and Liberal Democrat counterparts, in warning Beijing that Britain could not ignore the strong pressures for greater democracy in the colony before its transfer to China.

Mr Cunningham said Labour would support efforts to 'safeguard' the legitimate interests of the people of Hong Kong alongside its willingness to hold talks with China without preconditions.

That view was echoed by Mr David Howell, Tory chairman of the Commons foreign affairs committee, who said Mr Patten's proposals would simply put into practice agreements already made with China.

Sir David, the Liberal Democrats' foreign affairs spokesman, said that if Beijing considered that Mr Patten's proposals broke previous agreements on the future of the colony, the matter could be referred to the International Court of Justice.

GB United Kingdom, EC CN China, Asia HK Hong Kong, Asia P9721 International Affairs GOVT Government News P9721 The Financial Times London Page 13 316
Parliament and Politics: Miners' group wins order Publication 930316FT Processed by FT 930316 By JAMES BUXTON, Scottish Correspondent

MONKTONHALL Mine-workers, the consortium of miners which runs an Edinburgh colliery leased last year from British Coal, has agreed a five-year deal with ScottishPower to supply the electricity company with 100,000 tonnes of coal a year.

But it was not clear last night whether the contract, the second big order the company has won, would stave off a severe financial crisis caused mainly by delays in bringing the mine back into production.

It emerged at the weekend that the 160 miners, each of whom has invested Pounds 10,000 in the company, had gone without wages for seven weeks after Bank of Scotland refused to advance more loans. At the end of February the company said it was seeking a partner or outside investor to overcome funding problems.

Yesterday Caledonian Mining, a firm of mining consultants based in Newark, Notts, confirmed that it had had discussions with Monktonhall Mineworkers and its advisers Price Waterhouse. It said it was interested only in having overall control of the company.

The mineworkers are reluctant to cede control to Caledonian Mining, which was their rival in seeking to lease the mine from British Coal.

Caledonian said it wanted more information about the production levels achieved by the miners, the problems which had caused the financial crisis and the mine's marketing position.

It said it did not agree with the mineworkers' current mining method and questioned their company's 'ability to support the mine as a long-term viable proposition.'

Caledonian indicated that it would not buy out the miners for the full amount they had invested, which totals Pounds 1.6m. It would introduce different mining methods.

ScottishPower said it had decided to place a long-term order with Monktonhall after a 12,000-tonne test load proved satisfactory.

Monktonhall has an 87,000-tonne order to supply domestic coal to British Coal.

Monktonhall Mineworkers Scottish Power Caledonian Mining GB United Kingdom, EC P12 Coal Mining P4911 Electric Services P8748 Business Consulting, NEC MKTS Contracts P12 P4911 P8748 The Financial Times London Page 13 349
Parliament and Politics: Government disavows workfare Publication 930316FT Processed by FT 930316 By DAVID OWEN

THE GOVERNMENT has no intention of introducing a workfare-type system compelling claimants to work in return for benefit received, a junior minister told MPs yesterday, David Owen writes.

On the eve of a Budget likely to include a range of unemployment-related measures, Mr Alistair Burt, a junior social security minister, said the government had been trying to provide 'practical' help for the unemployed.

His comments followed Labour attacks on the burden which high unemployment imposed on the social security department's annual budget.

Mr Donald Dewar, shadow social security secretary, said the Pounds 10.4bn the department expected to spend in the coming year on the unemployed - equivalent to 12 per cent of the department's total spending - was a 'frightening' figure and a 'condemnation' of government policy.

Mr Dewar urged the government to recognise that the best way of cutting back on this spending was to reduce the dole queues and to support policies that would have that effect. He called for the principle of workfare to be rejected.

A redesign of schemes for the unemployed to provide programmes combining temporary work with job-hunting and involving some element of compulsion is believed to be in the pipeline.

Today's measures may include a relaxation of the rule on the hours someone can study before becoming ineligible for benefit.

GB United Kingdom, EC P9441 Administration of Social and Manpower Programs GOVT Government News P9441 The Financial Times London Page 13 252
Electrical engineering output rises Publication 930316FT Processed by FT 930316 By PETER MARSH, Economics Correspondent

STRONG output by the steel and computer industries was behind the good performance by manufacturers in January highlighted in government figures released yesterday.

Metals production jumped by a provisional seasonally adjusted 17 per cent between last December and the following month - mainly a result of stronger steel output following shutdowns during the Christmas break.

Over the same period the output of electrical and instrument engineering including computers rose by 3.2 per cent.

In the three months to the end of January, metals production was down 3.5 per cent compared with the previous three months.

On the same three-monthly basis electrical and instru-ment engineering increased by 2.9 per cent, while the whole of the engineering sector saw an output rise of 0.2 per cent.

Chemicals and artificial fibres showed a three-monthly increase in production of 2.7 per cent while textiles and footwear registered a 0.3 per cent rise.

Between the two consecutive three-month periods output of food, drink and tobacco, and of minerals and related products recorded declines of 1.6 per cent and 3.4 per cent respectively.

Elsewhere in engineering, vehicles and components suffered a 5.2 per cent production decline on the same three-monthly basis.

Metal and mechanical goods registered respective falls of 0.6 per cent and 0.2 per cent.

In the latest three months - compared with the corresponding period a year ago - engineering production increased 0.9 per cent, while metals output fell by 7.1 per cent.

Minerals and related products registered an output fall on the same basis of 5.9 per cent, and textiles, chemicals, and the food, drink and tobacco sector recorded production increases of 3.4 per cent, 1.7 per cent and 0.4 per cent respectively.

GB United Kingdom, EC P331 Blast Furnace and Basic Steel Products P99 Nonclassifiable Establishments P28 Chemicals and Allied Products MKTS Production P331 P99 P28 The Financial Times London Page 12 324
Housing market points to revival Publication 930316FT Processed by FT 930316 By ANDREW TAYLOR, Construction Correspondent

HOUSE sales continued to rise strongly last month, a survey of 30 of the country's largest estate agency chains showed yesterday.

The survey by the Ombudsman for Corporate Estate Agents (OCEA), an industry-appointed body, provides further evidence of a revival in the UK housing market this year.

There have been signs of a slight cooling in the market, although transactions are still running ahead of last March, as potential purchasers hold back from completing deals in case the Budget produces any surprises.

The 30 large estate agency companies covered by OCEA handle about half of UK house transactions. Last month they agreed 40,534 sales after taking account of cancellations. That was 11.2 per cent more than in February last year and the highest monthly total for at least 15 months.

Net sales last month were 27 per cent higher than in the previous month. A sale is recorded only if finance has been arranged, solicitors have been instructed and no chain is involved, says OCEA, which started compiling sales figures in December 1991.

Mr John Wriglesworth, housing market analyst at stockbrokers UBS Phillips & Drew, said: 'These latest results are encouraging. I would expect the housing revival to be resumed in April and May provided the chancellor does nothing in the Budget to damage confidence in what remains a fragile market.'

GB United Kingdom, EC P1522 Residential Construction, NEC P65 Real Estate MKTS Shipments P1522 P65 The Financial Times London Page 12 257
Benefits 'must target the poor' Publication 930316FT Processed by FT 930316 By JOHN WILLMAN, Public Policy Editor

THE COST of Britain's welfare state will continue to rise unless services are targeted at the poor, Professor Dennis Snower of Birkbeck College, London, said yesterday.

He said in a pamphlet published yesterday by the non-partisan Centre for Economic Policy Research that middle-income groups should be helped to make their own provision.

He says most welfare services are inherently resistant to productivity growth. Their real cost will rise inexorably, threatening the ability of the welfare state to help those in genuine poverty.

Prof Snower says redirecting welfare services is the only way to maintain society's responsibility to its poorest sections. But it would also allow tax cuts for the middle classes, leaving everyone better off.

He says loans against human capital would be the best way for most people to cover periods of unemployment, pay for healthcare and finance education and training.

Thus employed people could borrow against future earnings, making them more willing to retrain or accept alternative jobs. He says students should borrow more of the cost of their higher education so that they would 'internalise' its costs and benefits.

Banks are unwilling to lend against human capital because they find it hard to collect debts. Prof Snower says the government should guarantee such loans as it can trace people through the tax system.

He also endorses wage subsidies for the unemployed, a measure ministers have been considering in the run-up to today's Budget. He says un-employed people should be given the option of using their benefits to provide vouchers for employers that hire them - with the voucher worth more the longer the person has been unemployed.

The Future of the Welfare State. CEPR, 25 Old Burlington Street, London W1X 1LB. Pounds 5.

GB United Kingdom, EC P9441 Administration of Social and Manpower Programs COSTS Costs & Prices P9441 The Financial Times London Page 12 324
Upbeat forecast for Scots economy Publication 930316FT Processed by FT 930316 By JAMES BUXTON, Scottish Correspondent

THE Scottish economy is forecast by Mackay Consultants, a firm of economic consultants, to resume growing in 1993 after declining in 1992. Mackay believes Scotland will benefit from the devaluation of the pound because its industries are more oriented towards exporting than the UK average.

Mackay predicts that the Scottish economy will grow by 1.4 per cent in 1993. This compares with the Treasury's forecast in the 1992 Autumn Statement for the whole UK economy of 1 per cent, although the average for the UK made by independent commentators is now 1.4 per cent.

Although the government's estimate for Scotland's gross domestic product only goes up to 1991, when it showed a 0.2 per cent decline, Mackay concludes that in 1992 Scottish GDP fell by 1.3 per cent, slightly worse than the UK economy as a whole which fell by 1.0 per cent, according to the Treasury.

Unemployment in Scotland went below that of the UK as a whole in February 1992 for the first time in living memory. In January 1992 it was 9.9 per cent on a seasonally adjusted basis compared with the UK figure of 10.6 per cent, giving Scotland a lower unemployment rate than all regions of the UK except for the east Midlands and East Anglia.

Mackay expects the large Scottish electronics industry to be one of the strongest manufacturing sectors in 1993.

Prospects for the Scottish Economy in 1993. Mackay Consultants, Stirling University, Stirling FK9 4NF. Pounds 50.

GB United Kingdom, EC P9611 Administration of General Economic Programs P99 Nonclassifiable Establishments ECON Economic Indicators P9611 P99 The Financial Times London Page 12 283
Ofgas to act over power plant supply Publication 930316FT Processed by FT 930316 By DEBORAH HARGREAVES

OFGAS, the gas industry regulator, will take action next week to force British Gas to change the destination of gas sold to National Power.

The gas supply, sold three years ago for Pounds 1.5bn over 15 years, is earmarked for a gas-fired power station at Didcot in Oxfordshire. But National Power asked British Gas last year if it could transfer the supply to Little Barford in Bedfordshire.

The electricity generator has started construction of the Little Barford 680MW power station, which should be operational in 1995. But it has put plans for its Didcot station on hold amid uncertainty surrounding gas-fired power while the government conducts its energy review.

British Gas was reluctant to make the supply change because it did not want to be seen to encourage gas-fired generation while the subject is politically sensitive.

Ofgas started legal proceedings against the company in December and is due to serve an enforcement order on British Gas next week. An enforcement order is Ofgas's highest legal power - it gives British Gas 28 days to comment on the matter, after which it becomes effective.

'We can't see why the issue is so controversial, but we've been discussing it with British Gas for nine months and each time we get near a resolution, they back away from it,' said Mr Greg McGregor at Ofgas. The enforcement order could allow other power generators to change the delivery site for their gas, but so far National Power is the only company to apply to do so.

Ofgas's enforcement order will state that British Gas must come forward with new contractual arrangements for customers buying gas for power generation under the same terms as National Power. This will enable the company to change the site at which the gas should be delivered.

British Gas is wary of making any changes to its gas contracts because it does not want to pre-empt the government's white paper on energy, due to be published in the next two weeks.

National Power said yesterday it was 'very pleased' with Ofgas's action, and it had little sympathy with British Gas's view that the issue was politically sensitive.

British Gas National Power GB United Kingdom, EC P9631 Regulation, Administration of Utilities P4923 Gas Transmission and Distribution P4911 Electric Services COMP Company News GOVT Legal issues P9631 P4923 P4911 The Financial Times London Page 11 409
Charities targeted by unions' bank Publication 930316FT Processed by FT 930316 By ROBERT TAYLOR, Labour Correspondent

UNITY Trust Bank, the small bank set up by the unions and the Co-operative Wholesale Society, is to step up its competition with the high-street banks by extending its services to charities and and voluntary organisations, Mr Gordon Beesley, the bank's managing director, said yesterday.

The bank will offer small charities with a turnover of less than Pounds 5m a year free banking, while larger charities will be offered no-interest, no-commission services. The bank believes charities are suffering as a result of increased bank charges.

It also plans to launch a campaign to encourage employers to provide occupational pension schemes for low-paid workers in conjunction with other employers and the bank. It estimates that between 7m and 9m workers have no provision beyond the state pension.

Sir Dennis Landau, the bank's new chairman, announced the broad outline of its plans at the same time as its annual results for 1992. Those showed that the bank made a pre-tax profit of Pounds 368,000 after a pre-tax loss of Pounds 1.7m the previous year.

The bank's risk-asset ratio - the standard for assessing balance-sheet strength - rose from 18.5 per cent to 22.7 per cent last year while the number of its accounts rose 11 per cent to more than 15,000 with just over a quarter from outside the union movement.

Unity Trust Bank GB United Kingdom, EC P602 Commercial Banks TECH Services COMP Company News P602 The Financial Times London Page 11 257
Simplify equality laws, says EOC Publication 930316FT Processed by FT 930316 By DIANE SUMMERS, Labour Staff

THE EQUAL Opportunities Commission yesterday urged the government to simplify 'grotesquely complex' laws on equal pay after the settlement of a seven-year case involving five women.

The women were employed by H. & J. Quick, a Manchester-based Ford dealer, as administrators and financial clerks.

They were awarded a total of Pounds 15,000 after a tribunal found that their work was of equal value to that done by higher-earning men who worked as parts salesmen, van drivers and car cleaners.

The company has decided to withdraw its appeal against the ruling and has paid them the difference in wages. Only one of the women still works for the company.

Quick said it 'felt it was the right time to settle'. It added that the law was very complex and that much management time had been spent on the issue.

The Equal Opportunities Commission wants to see the existing acts covering sex discrimination and equal pay replaced with a single equal treatment act.

There are now long delays before cases are brought before tribunals, and independent experts commissioned by tribunals to evaluate jobs take an average of 12 months to complete their reports. Cases going to appeal take on average a further 18 months.

H and J Quick GB United Kingdom, EC P5511 New and Used Car Dealers PEOP Labour GOVT Regulations P5511 The Financial Times London Page 11 243
Calling time on drinking with the boys: How women see their role in the unions Publication 930316FT Processed by FT 930316 By DIANE SUMMERS

AS WOMEN trade unionists gather for their annual conference in Blackpool this week they will be forced to confront one unpleasant fact. The movement itself - far from being able to report gains in promoting women to top jobs - appears to be going backwards.

In 1990 there were five female general secretaries of TUC-affiliated unions. Today only one is left: Ms Elizabeth Symons, who leads the small Association of First Division Civil Servants.

According to one woman union official, many men in unions 'are still making the right noises, but have done very little to shift their attitudes'. The apparent decline in the fortunes of women within unions has been partly structural and partly cultural, she says. Women have often lost out - or given up the battle of working in an often hostile environment - as tiers of union management have been stripped out to save costs.

'Women working for unions have to work extremely hard to prove themselves,' the official continues. 'If they're not endlessly drinking with the boys then they're considered not to be playing the game and they don't get on. Some women have decided to get out and make their contribution to the labour movement in some other way. To some men, that's seen as bottling out - not being able to stand the pressure.'

Two of the unions which will be calling at the conference for a law to make employers publish annual figures on the number of women they have promoted have themselves lost their female leaders. At the Association of University Teachers, Ms Diana Warwick has moved to a new job and has been succeeded by a man; at the National Union of Knitwear, Footwear and Apparel Trades, Mrs Helen McGrath lost her general secretary's job to a male competitor as the result of a merger.

The trend towards fewer, larger unions has been responsible for other casualties. Ms Brenda Dean, as general secretary of the Sogat print union, was the best known woman trade unionists of recent times. She disappeared from view after the union's merger with the National Graphical Association and has recently reappeared as head of the watchdog body which monitors premium-rate telephone services. The merged print union is led by former NGA general secretary Mr Tony Dubbins. The Health Visitors' Association, in the past always female-led, has been subsumed into the male-led MSF general technical union.

The loss of female figureheads is arguably bad for unions' public image at a time when efforts are being made to broaden appeal. Women are less likely to join unions than men, but are becoming an increasingly important part of the workforce and now make up about a third of union membership. As traditional male jobs in manufacturing are lost, unions are promoting themselves to women in order to keep up their memberships.

It could be seen as just bad luck that the movement is now down to one female general secretary. However, representation at the next level down is also poor and apparently getting worse. According to the Labour Research Department, seven of the 10 largest unions have seen a decline in the number of female national full-time officials in recent years.

The greatest progress seems to have been made on national executive committees - the top ruling bodies - where almost all of the biggest 10 unions have improved their female representation. The new 'super-union' Unison, which comes into being on 1 July, will have at least 44 out of 67 seats on its executive occupied by women. About 1m of the 1.4m membership of the new union, formed out of Nalgo and Nupe, the local government unions, and Cohse, the health service union, will be female.

However, even in this female-dominated union, the very top jobs will held by men for some time to come. Mr Alan Jinkinson, Nalgo general secretary, will lead the new body until he retires in 1996.

GB United Kingdom, EC P8631 Labor Organizations PEOP Personnel News CMMT Comment & Analysis P8631 The Financial Times London Page 11 697
Revival predicted for construction equipment Publication 930316FT Processed by FT 930316 By ANDREW BAXTER

AN UPTURN is in sight for the construction equipment industry after three consecutive years of 'devastating' decline, according to the Corporate Intelligence Group.

Unit sales of construction equipment such as excavators, loaders and dumptrucks fell 3 per cent last year to 8,910, it said. Demand in unit terms was the lowest recorded for more than a decade - sales were barely a third of the peak of 22,544 units in 1988.

The group said the mood of more than 40 leading equipment distributors and manufacturers interviewed last month was bleak 'with an overwhelming resentment against the government for doing so little to relieve the situation'.

But, it said, there was a general consensus that the worst was behind the industry. Recovery would be patchy and slow to begin with, but demand should harden by mid-1993, resulting in a full year's increase of 21 per cent.

The group said a number of factors supported its forecast:

Interest rates are down to an acceptable level, and end-users can contemplate new purchases with realism.

Good second-hand equipment is hard to find, with a significant proportion of the stock of used machines having been shipped overseas in the last two years.

Machines sold at the peak of demand are coming up for renewal. Although the machines will not be replaced on a one-for-one basis, the trend will start to give some comfort to hard-pressed dealers.

The group says demand will probably recover first from sales to the plant-hire sector, resulting in sales increases for backhoe loaders, smaller crawler excavators, mini-excavators and skid-steer loaders. Larger equipment types - rigid dumptrucks, heavier crawler excavators and bigger wheeled loaders - will be slower to recover.

The forecast assumes that the government will do little more to stimulate the economy. If it does, and business confidence is partially restored, equipment demand could recover to 12,000 units next year, the group believes. Even that, however, is 20 per cent to 25 per cent below what it believes is a viable and profitable level of business.

GB United Kingdom, EC P353 Construction and Related Machinery MKTS Sales P353 The Financial Times London Page 10 367
Dumptrucks seller hopes to scale the peaks again: How one importer has coped with the recession Publication 930316FT Processed by FT 930316 By ANDREW BAXTER

WHEN Mr Chris Rees shows a picture of the 'Matterhorn' to visitors to his office near Cambridge, the last thing on his mind is a skiing holiday in the Swiss Alps.

This 'Matterhorn' is a graph of the UK market for articulated dumptrucks. The summit was in 1989 when 869 trucks were sold, according to statistics from London-based RB Research. 'Happy days,' comments Mr Rees.

Last year sales languished at 293 units. Mr Rees, managing director of VME Construction Equipment GB, the UK importer for the Brussels-based group, says he is 'hoping for twin peaks'.

For the first eight months of last year, VME - best known in the UK for its Volvo BM loaders and dumptrucks - coped with the recession relatively well. It increased the market shares of its main products, sticking to a policy of premium prices and a high level of customer support. Dropping prices too far, says Mr Rees, would in turn depress the high resale value of the plant - a crucial selling point.

Employment has been reduced sharply - 265 in the UK compared with 400 in 1989 for VME and the much smaller UK workforce of Akermans, a Swedish hydraulic excavator company acquired in 1991. Employees have agreed a pay freeze for this year.

On top of the recession, Mr Rees and his team had a short, sharp shock in the autumn. Unlike big multinational rivals such as Caterpillar and Komatsu, VME has no UK manufacturing plant, and the devaluation of sterling in September triggered what Mr Rees calls 'two months of hell' - VME imports 95 per cent of its products, and all its parts, from Sweden. Then came the devaluation of the Swedish krona in mid November, and it was back to square one.

Until September 15, Mr Rees was looking to turn in a profit of Pounds 1m for the year, but Black Wednesday changed all that. 'We sat in this room that afternoon wondering what the hell we were going to do,' he says.

The effect of a 15 per cent reduction in margins was felt immediately, as the company carries very little stock. After discussing the situation with his head office, Mr Rees and his national sales manager, Mr Bob Watterson, decided to continue trading as if the devaluation had not occurred.

The company badly wanted to avoid disorderly pricing if the increases were reversed a few weeks later, and passing on the effect of the devaluation to customers would have hit sales volume.

'Volume is critical,' says Mr Rees. 'We need to keep up sales of machines to support our parts and service operation in two or three years time. It's a balancing act between short-term profits and long-term benefits.'

After a big sales push in December, VME broke even last year. Trading in the first quarter has been better than a year ago, and some confidence has returned, says Mr Rees. What customers need now, he says, is stability.

But those cherished twin peaks remain a long way beyond the horizon. A gentle upward gradient is the most that can be hoped for this year.

VME Construction Equipment GB GB United Kingdom, EC P353 Construction and Related Machinery COMP Company News P353 The Financial Times London Page 10 568
FT Conference: EC to review water standards Publication 930316FT Processed by FT 930316 By BRONWEN MADDOX, Environment Correspondent

A QUARTER of Europe's rivers fall below European Community environmental standards, the European Commission said yesterday. It announced a wide-ranging review this year of all its directives on water quality.

Mr Tom Garvey, deputy director-general of the environment directorate, said some EC standards might be modified or dropped in the light of new scientific evidence.

But Mr Garvey, speaking in London at a Financial Times conference on the European water industry, said he was disappointed at the lack of improvement in EC water quality in the past 20 years.

UK water companies and their Continental counterparts have been campaigning fiercely for a review of the EC water directives, some of which were issued in the 1970s. They say many unnecessary and expensive to implement.

The companies have also been concerned that the National Rivers Authority, the water quality watchdog, could add billions of pounds to industry spending by a severe interpretation of the directives or by setting its own statutory water quality objectives.

Mr Ian Byatt, director-general of the economic regulator Ofwat and responsible for setting price rises, told the conference that 'an unending escalation in prices would be intolerable' and that prices were 'now in danger of being driven ever upwards by new obligations'.

Lord Crickhowell, chairman of the authority, accused the water companies and Ofwat of exaggerating the likely costs of measures such as water quality objectives when the objectives had not yet been set. The water industry has estimated that this decade's capital spending to bring UK water in line with environmental standards could be between Pounds 30bn and Pounds 45bn.

The Water Services Association, which represents the 10 large water and sewerage companies of England and Wales, yesterday welcomed the commission's proposed review.

GB United Kingdom, EC QR European Economic Community (EC) P9511 Air, Water, and Solid Waste Management RES Natural resources RES Pollution P9511 The Financial Times London Page 10 332
FT correspondent wins two awards Publication 930316FT Processed by FT 930316

VANESSA HOULDER, property correspondent of the Financial Times, was yesterday named property journalist of the year by the Incorporated Society of Valuers and Auctioneers.

She also won the Capital and Regional Properties award for commercial property journalist of the year.

GB United Kingdom, EC P2711 Newspapers PEOP Personnel News TECH Standards P2711 The Financial Times London Page 10 68
Journalists win papers tax appeal Publication 930316FT Processed by FT 930316

THE Inland Revenue failed yesterday in a renewed court move to make journalists liable for tax on money received from their employers to cover the cost of newspapers bought in the course of their work.

The Court of Appeal ruled against the Revenue in test cases involving four journalists from the Daily Mail and one from The Mail On Sunday.

GB United Kingdom, EC P2711 Newspapers P9311 Finance, Taxation, and Monetary Policy GOVT Legal issues P2711 P9311 The Financial Times London Page 10 93
Swiftcall granted telecoms licence Publication 930316FT Processed by FT 930316

SWIFTCALL, a company selling international calls from Britain to Canada and the US at substantial discounts from standard British Telecommunications tariffs, gained a licence and began operating yesterday.

The Department of Trade and Industry granted it an International Simple Resale licence under which telecom circuits are leased in bulk and sold on. Swiftcall's tariff per minute is 25p to anywhere in north America, plus the cost of a local call to the network.

Swiftcall GB United Kingdom, EC P4813 Telephone Communications, Ex Radio TECH Licences P4813 The Financial Times London Page 10 102
Islington to appeal over swaps ruling Publication 930316FT Processed by FT 930316

ISLINGTON Borough Council in north London has decided to appeal against last month's High Court decision that it should repay more than Pounds 1m made under invalid swap agreements to WestDeutsche Landesbank.

The ruling was made in the first test case since the Lords ruled two years ago that councils had no power to enter interest-rate swap agreements. The Lords' decision left 80 banks facing losses of Pounds 560m.

On Friday, Kleinwort Benson won a second test case against South Tyneside council. It was awarded almost Pounds 2m in principal and interest payments.

Westdeutsche Landesbank Girozentrale GB United Kingdom, EC P9121 Legislative Bodies GOVT Legal issues P9121 The Financial Times London Page 10 125
Olympic symbol to become copyright Publication 930316FT Processed by FT 930316 By GILLIAN TETT

THE OLYMPIC symbol is to become the subject of exclusive copyright in Britain, Mr Peter Brooke, heritage secretary, announced yesterday, Gillian Tett writes.

Under legislation expected to be passed soon, the British Olympic Association will have sole UK control over the five-ringed Olympic symbol, with rights to sell the symbol to promoters. Until now use of the symbol has been unregulated. with a number of businesses across Britain adopting versions for their marketing.

Mr Brooke said the move underlined the government's support for Manchester's bid to host the 2000 Olympics. The International Olympic Committee required countries hosting the games to provide a copyright guarantee for the symbol.

The British Olympic Association said that companies wishing to use any version of the symbol would have to pay 'at least a six-figure sum' to become official sponsors.

GB United Kingdom, EC P7999 Amusement and Recreation, NEC TECH Patents P7999 The Financial Times London Page 10 166
More heavy job cuts expected soon at Daf Publication 930316FT Processed by FT 930316 By KEVIN DONE, Motor Industry Correspondent

A FURTHER round of job cuts at Leyland Daf is expected in coming weeks as the receivers cut excess stocks and bring vehicle output into line with forecast demand.

Several hundred jobs are thought to be on the line.

The administrative receivers of Leyland Daf, the UK subsidiary of Daf, the Dutch commercial vehicle maker which collapsed into receivership six weeks ago, last month cut 1,715 of the company's 5,500 strong UK workforce.

Mr Murdoch McKillop, joint administrative receiver, said yesterday the company was 'likely to be trading in receivership for months rather than weeks; we must make sure that the balance between sales and production is correct.'

The company had 'twice as much free stock as we should have' he added. 'Our stocks must be much leaner and we must make sure that things are in balance.' All three Leyland Daf plants were back in production, and the receivers are studying what level of output could be sustained in the present market.

The truck assembly plant at Leyland, Lancashire, was producing 100 to 125 trucks a week of which around a third would be accounted for by Leyland Daf's two military truck contracts from the UK Ministry of Defence. Van output is running at 230 to 250 a week.

Mr McKillop warned it was unlikely that there would any funds available for payment to unsecured trade and other creditors of Leyland Daf 'The question is what will be the shortfall to the syndicate of banks,' he said.

The most advanced plan for rescuing the constituent parts of the Leyland Daf operations concerns the proposed management buy-out of the van business based in Birmingham.

'I think there is a good chance that something will happen,' said Mr McKillop. 'They have had encouraging discussions with institutions. I would hope to be able to formalise plans in the next few weeks.

'Now that we have stabilised production, we are looking at keeping the operations running for as long as it takes, for months if necessary.'

Mr McKillop has held talks with Paccar, the North American truckmaker, to explore its interest in the Leyland truck plant, but and a management buy-out is being explored.

The future of the UK truck operations is complicated by the continuing confusion over its future relations with Daf Trucks, the new Dutch/Belgian company formed to take over the core medium and heavy truck operations of the old Daf group.

The success of a management buy-out or outside acquisition of the Leyland plant appears to hinge on its ability to gain access to Daf Trucks' Continental dealer network for sales of its UK-built 45 series light truck range.

Leyland DAF GB United Kingdom, EC P3713 Truck and Bus Bodies P3714 Motor Vehicle Parts and Accessories PEOP Labour P3713 P3714 The Financial Times London Page 10 486
Names win stop-loss claims ruling Publication 930316FT Processed by FT 930316 By RICHARD LAPPER

MORE THAN 100 Names yesterday won a High Court ruling allowing them to recover directly claims on stop-loss insurance policies - personal reinsurance which covers heavy losses.

Lloyd's unsuccessfully argued that the claims under the policies should first be paid into premium trust funds, which contain premium income earned by Lloyd's underwriters from insurance business.

The ruling could ease the cashflow problems of some loss-making Lloyd's Names, who are among several thousand facing heavy losses at the insurance market.

Mr Justice Tuckey in the Commercial Court ruled that Names - individuals whose assets support the Lloyd's market - are entitled to receive recoveries directly from brokers.

Mr Tuckey held that recoveries were not payable directly to the premium trust funds unless specifically stated in the policy or unless the Name had signed an 'irrevocable' letter of authority assigning the money to their premium trust fund. A directive that all stop-loss recoveries must be paid to the trust fund issued last year by Mr David Coleridge, then chairman of Lloyd's, was ruled invalid.

A two-week moratorium on the ruling was agreed so that Lloyd's could consider whether to appeal.

Lloyds of London GB United Kingdom, EC P6311 Life Insurance P6411 Insurance Agents, Brokers, and Service PEOP Personnel News GOVT Legal issues P6311 P6411 The Financial Times London Page 10 232
Hunt for tourism chief is widened Publication 930316FT Processed by FT 930316 By MICHAEL SKAPINKER, Leisure Industries Correspondent

THE GOVERNMENT has turned to headhunters Tyzack Accord to find a new chairman of the British Tourist Authority after failing to attract a suitable candidate to replace Mr William Davis, who will leave at the end of this month.

Tourism industry managers fear a new chairman will not be in a position to start immediately and that the authority might begin the run-up to the summer tourist season with an interim head.

Tyzack has also been asked to find a new chief executive for the BTA to replace Mr Michael Medlicott, who is to become European vice-president of Delta Air Lines, the US carrier, next month.

One travel industry executive said Mr Peter Brooke, national heritage secretary, should not have terminated Mr Davis's appointment without having a replacement in mind. Mr Davis, a former editor of Punch, was told at the end of January that he was unlikely to be reappointed when his three-year term ended on March 31.

Potential candidates are believed to feel that two aspects of the Pounds 35,000 part-time post make it unattractive. The first is that the BTA head will also chair the English Tourist Board, which is having its grant cut from Pounds 15.6m last year to Pounds 9.1m in 1995.

One industry insider said: 'The BTA at least has the government's support and commitment. The ETB has not got the government's support and its morale is low. The BTA is an attractive job. The ETB is a poisoned chalice.'

The second drawback is that the post is for only two days a week. Mr John Lee, a former tourism minister who lost his seat at the last general election, said the post should be full-time.

GB United Kingdom, EC P9199 General Government, NEC PEOP Labour P9199 The Financial Times London Page 10 316
Study of City trials procedure published Publication 930316FT Processed by FT 930316 By ROBERT RICE, Legal Correspondent

THE scope for transferring fraud cases out of the criminal justice system to be dealt with by regulatory agencies is limited, according to research published yesterday by the Royal Commission on Criminal Justice.

The study is the first large-scale review of serious fraud since the 1986 Roskill report. It finds that, although there are cases or parts of prosecutions which could have been dealt with outside the criminal justice system, there is much doubt in the City about whether self-regulatory organisations would have taken disciplinary action unless put under political pressure.

The report says a problem remains over what to do about people such as Mr Roger Levitt, head of the collapsed Levitt Group, and Mr Asil Nadir, former chairman of Polly Peck, both of whom are due to stand trial in September and who are not required to be members of any authorised body.

Professor Michael Levi of Cardiff University, author of the report, says the changes to pre-trial procedures in serious fraud cases introduced after the Roskill report have not yet bedded down.

That is partly because of the absence of sanctions in cases where the defence does not co-operate in pre-trial stages, but also because there is no process by which 'the system' or individual judges can learn from the experiences of others.

Most judges do not want to conduct many fraud trials, and once they begin to learn how to handle them, they stop. Then others who admit to having little knowledge of fraud are selected because it is 'their turn'.

Professor Levi also casts doubt on the benefits to be gained from the introduction of a formal system of US-style plea-bargaining in England and Wales. He says UK sentencing practice after guilty pleas leaves less scope for significant bargaining.

Serious Fraud, Royal Commission on Criminal Justice, Research Study 14. HMSO, Pounds 25.

GB United Kingdom, EC P8111 Legal Services P92 Justice, Public Order, and Safety GOVT Legal issues P8111 P92 The Financial Times London Page 10 347
Loss from fraud 'likely to rise' Publication 930316FT Processed by FT 930316 By JIMMY BURNS

BANKING institutions and individual investors face the prospect of mounting losses through increasingly sophisticated and widespread financial fraud, a seminar organised by the International Chamber of Commerce heard yesterday.

'There is a need for the banking industry to tackle this problem and come out openly and strongly against it,' said Mr Eric Ellen, chief executive of the chamber's Business Security Services. 'The problem is widespread and waiting to erupt.'

Delegates, including senior bankers, private investigators and police officers, were given a large restricted-access file compiled by the ICC's Commercial Crime Bureau identifying types of fraudulent banking transaction which appear to be increasing.

The seminar focused in particular on fraudulent standby letters of credit. A standby letter of credit is a guarantee from a bank to a customer that it will honour that customer's trade debts to a third party. The letter can be used as collateral to borrow funds.

Professor James Byrne, a US commercial law expert, told the seminar that fraudsters were taking advantage of the proliferation of laws and the complexity of international guidelines to couch documents in highly legalistic language.

The quality of documents was in many cases enhanced by highly developed copying machines and intercepted swift codes - swift is a fast computer-based communication system banks use to transfer messages on transactions and which can replace telexes.

One senior police officer told the conference one problem in pursuing fraud cases was that banks sometimes refused to co-operate on the grounds of confidentiality.

Without more support from the banks the police did not have the resources to deal with the problem. 'Unless the banking fraternity gets its act together, financial fraud is just going to mushroom,' he told the seminar.

A vice-president of a US bank said that the international recession had brought about a 'cocktail of circumstances' in which fraudsters were flourishing.

GB United Kingdom, EC P602 Commercial Banks P672 Investment Offices TECH Standards P602 P672 The Financial Times London Page 10 340
Brewers' plea on lottery sales Publication 930316FT Processed by FT 930316

THE Brewers' Society is to press Mr Robert Key, junior heritage minister, to allow the country's 65,000 pubs to sell National Lottery tickets.

Ministers have indicated during Commons debates on the lottery legislation that pubs would be excluded.

GB United Kingdom, EC P5813 Drinking Places P9311 Finance, Taxation, and Monetary Policy GOVT Government News P5813 P9311 The Financial Times London Page 10 72
Parliament and Politics: 14% rise expected in NHS drugs bill Publication 930316FT Processed by FT 930316

THE NATIONAL Health Service drugs bill is expected to increase by more than 14 per cent this financial year, Dr Brian Mawhinney, health minister, said yesterday.

Such a level of increase could not be sustained, he said. The drugs bill accounted for about 10 per cent of NHS expenditure and it was unacceptable to 'let it run free'.

GB United Kingdom, EC P283 Drugs P9431 Administration of Public Health Programs GOVT Government spending P283 P9431 The Financial Times London Page 13 96
People: EBRD picks chief economist Publication 930316FT Processed by FT 930316

Jacques Attali's European Bank for Reconstruction and Development has hired a heavy hitter as chief economist to replace John Flemming, who leaves in September to become warden of Wadham College, Oxford.

Michael Bruno (right), governor of the Bank of Israel between 1986 and 1991, will take over in October. He was approached indirectly by the EBRD about six months ago and opted for the London-based bank after turning down an offer to be chief economist at the World Bank in Washington. Bruno is currently Melchior Professor of International Economic Policy at the Hebrew University in Jerusalem and president of the International Economic Association.

At 60, Bruno is no stranger to the problems of radical economic change and has been willing in the past to take a tough line with politicians.

He was one of the architects of a successful Israeli economic recovery programme in the mid-1980s and later, as bank governor, had to cope with the economic strains caused by mass immigration from the former Soviet Union.

Bruno has advised Mexico, the former Yugoslavia and Poland on economic reform and wrote a book on stabilisation and reform while he was a visiting professor at Massachusetts Institute of Technology. At the Israeli central bank, he was often embroiled in controversy with the Likud-led government. In 1989 he took the brave step of urging cuts in the Israeli defence budget to curb increases in government borrowing.

Such policy-making experience will be invaluable in his dealings with the new democracies of eastern and central Europe and the former Soviet republics as well as with the Byzantine bureaucracy of the EBRD itself.

GB United Kingdom, EC P6081 Foreign Banking and Branches and Agencies PEOP Appointments P6081 The Financial Times London Page 17 298
People: Non-executive directors Publication 930316FT Processed by FT 930316

Matthew Dobbs, a director of Schroder Investment Management (Japan), at SCHRODER KOREA FUND on the resignation of David Salisbury.

Schroder Korea Fund GB United Kingdom, EC P672 Investment Offices PEOP Appointments P672 The Financial Times London Page 17 47
Amnesty plan for Salvadoran abuses Publication 930316FT Processed by FT 930316 By DAMIAN FRASER and MICHAEL LITTLEJOHNS at the UN MEXICO CITY, NEW YORK

EL SALVADOR'S President Alfredo Cristiani has proposed an amnesty for active and former high-ranking military officers blamed by a United Nations report for some of the worst atrocities of the country's 10-year civil war.

The report, released yesterday, cites 'substantial proof' that General Rene Emilio Ponce, who resigned as defence minister on Friday, and four other military officers ordered the killing of six Jesuit priests in 1989. It says the late Mr Roberto D'Aubuisson, extreme right-wing leader of the Arena party, ordered the murder of Archbishop Oscar Romero in 1980. The US-trained Atlacatl battalion was held responsible for the massacre of a thousand civilians at El Mozote in 1981.

The murders, assassinations and other human rights abuses were committed during a civil year that pitted the US-backed army and civilian government against left-wing guerrillas. The US gave the army and government around Dollars 6bn in aid during the 1980s, despite accusations by human rights observers that the Salvadoran military was guilty of the crimes now described in the report.

The two sides reached a peace agreement last year, with the Salvadoran government agreeing to give the rebels land, purge the military, and reform the police and judiciary, and set up a commission to investigate the worst acts of violence.

The UN report was written by Mr Belisario Betancur, former Colombian president, Mr Reynald Figueredo, former Venezuelan foreign minister, and US jurist Mr Thomas Burgenthal.

They also accuse leaders of the rebel Farabundo Marti National Liberation Front of killing and kidnapping civilians, mayors of cities under government control, dissidents in the rebel movement, judges and US military personnel.

The commission urged that those named in the report be barred from public office for 10 years, and be prohibited from ever holding military or security responsibility. It called for a special investigation into the death squads that killed tens of thousands of Salvadorans in the 1980s, believing that they continue to be a 'potential menace'.

According to the commission Gen Ponce, Gen Juan Orlando Zepeda, deputy defence minister, and Gen Juan Rafael Bustillo, former air force commander, met on the eve of the murder of the six Jesuits, their housekeeper and her daughter and ordered Colonel Guillermo Benavides to have them killed 'without any witnesses'. Col Benavides was convicted of the Jesuits' murder, and is serving a 30-year prison sentence.

At a ceremony in New York to release the report, Mr Boutros Boutros Ghali, the UN secretary general, appeared to offer some support to Mr Cristiani's amnesty proposal.

Observing that the country had made great strides, but that peace-building was far from over, Mr Boutros Ghali said Mr Cristiani deserved the international community's encouragements in his efforts.

SV El Salvador, Central America P97 National Security and International Affairs PEOP Personnel News GOVT Legal issues P97 The Financial Times London Page 6 492
New York Post files for protection Publication 930316FT Processed by FT 930316 By KAREN ZAGOR NEW YORK

THE New York Post yesterday filed for bankruptcy protection and failed to publish amid a newsroom mutiny.

The seemingly indestructible tabloid has bounced back from the verge of death several times in recent years, but the latest crisis may prove fatal. It was triggered by a staff revolt following plans to sack about 270 people by the Post's latest potential publisher, Mr Abe Hirschfeld.

On Friday, a bankruptcy court judge ruled that property investor Mr Hirschfeld could acquire the paper. He immediately ordered dismissal of the editor and threatened to fire about a third of its staff.

Although the paper's current owner, property developer Mr Peter Kalikow, filed for protection from creditors in 1991, the paper was not part of his bankruptcy petition. Mr Kalikow continued to run the paper until January, when bank pressure forced him to put it up for sale. The Post lost about Dollars 5m last year.

US United States of America P2711 Newspapers COMP Company News P2711 The Financial Times London Page 6 184
Italy's Corruption Scandal: Philosophical investors push up share prices despite probes Publication 930316FT Processed by FT 930316 By HAIG SIMONIAN

UNDETERRED by the almost daily spectacle of new boardroom-level arrivals into Milan's decrepit San Vittore prison on corruption allegations, Italian shares have risen by about 12 per cent this year.

The resilience of equities to the revelations now involving most leading companies suggests that most investors are unconcerned by the arrests. Rather than tumbling with each new leak about kickbacks on contracts, the capitalisation of most companies has surged in 1993.

The reasons lie in expectations of lower interest rates, the benefits of a cheaper lira for exporters and last summer's deal between unions and employers to abolish the scala mobile wage indexation system. Concern about corruption has so far been contained to a handful of cases.

The pace of the rises also reflects many investors' under-weight positions in Italian stocks. Once sentiment began to shift last month, topping up depleted portfolios created a bandwagon effect. 'Once the ball started rolling, most investors had to start buying not to miss the market's performance, even if they had doubts about the fundamentals,' says one analyst.

Concern about individual arrests has been brushed aside in the context of broader corporate prospects. 'Institutional investors understand that the companies are still in business. Arresting Mr Francesco Paolo Mattioli, Fiat's chief financial officer, doesn't mean it has stopped making cars. The question is whether the new Uno will be a good car, not whether a given executive is in jail,' says Mr Gianluca Codagnone, an analyst at Milan brokers Aloisio, Foglia, Ventura.

Fiat's share price has climbed steadily this year, reaching L5,560 yesterday. That compares with L4,810 on February 17 last year, when Mr Mario Chiesa, the Socialist administrator whose testimony triggered the investigations, was arrested.

Yet the general rise in prices on the bourse masks differing sectoral performances. Construction has been hit hardest. Shares in Fiat's Cogefar-Impresit building subsidiary have dropped to L2,730 from L3,443 when Mr Chiesa was arrested. Last May, Mr Enzo Papi, the group's former managing director, spent 55 days in San Vittore under interrogation by magistrates.

The virtual freeze in public works contracts still dampens the sector's performance.

The problems in the building sector have spilled over into related industries. Italmobiliare, the holding company for Mr Giampiero Pesenti, the industrialist detained last month and now freed, have sunk to L40,000 from L64,200 when Mr Chiesa was arrested last year. Italmobiliare's main subsidiary is Italcementi, Italy's biggest cement group. Like other cement and building materials concerns, it has been hurt by the building slowdown and problems at Ciments Francais, the French cement maker it bought last year.

Companies dominated by single individuals embroiled in the investigations have also suffered disproportionately. Shares in the Filippo Fochi plant engineering group tumbled on the arrest of Mr Roberto Fochi, its chairman and managing director. His subsequent release from jail, combined with a big Iranian contract, was greeted by a marked recovery in the stock price.

Sometimes negative factors have coincided, triggering particularly sharp falls. The Premafin group of Mr Salvatore Ligresti, the Milan property magnate arrested on corruption charges last year, stands out.

Shares in Mr Ligresti's Grassetto building concern have tumbled by more than half since Mr Chiesa's arrest. Premafin's share price fall has been even more dramatic, reflecting the role of Mr Ligresti in the group. Premafin's shares have plummeted to L5,500 from L11,075 in mid-February 1992.

Shares have also fallen in a handful of cases where investors believe companies may face one-off costs as a result of the investigations. Ferruzzi Finanziaria, one of Italy's biggest private-sector holding companies, and Montedison, its big chemicals and agro-industrial arm, both saw their shares slide when magistrates turned their attention to the ill-fated Enimont chemicals joint venture.

Enimont was wound up in late 1990 when the state-owned Eni energy and chemicals group bought out Montedison's 40 per cent stake. The L2,800bn price paid is now under examination, amid allegations of deliberate over-valuation linked to kickbacks to political parties.

The Enimont inquiries have already involved some of Italy's best-known entrepreneurs. Mr Raul Gardini, chairman of Montedison's parent company at the time, and Mr Sergio Cragnotti, former Ferruzzi executive who used to be Enimont's managing director, have been told by magistrates they are under investigation.

In spite of the uncertainty created by the investigations, many analysts believe the corruption scandal will eventually help Italian companies. 'It will eventually be much easier for the market to judge companies on their skills and competitiveness, rather than the quality of their political contacts,' says Mr Codagnone.

The demise of contracting through private tenders, which paved the way for many of the inflated public-sector deals now under investigation, may even help some state groups facing heavy investment programmes.

One analyst points out that at least part of a contract - the part which might have represented kickbacks - would not now have to be paid.

Most of his colleagues fear the close scrutiny likely to be given to big contracts may slow decision-making.

However, they agree the greater transparency that should ensue will cut costs and improve efficiency in the end.

IT Italy, EC P6231 Security and Commodity Exchanges P6211 Security Brokers and Dealers MKTS Market data COSTS Equity prices P6231 P6211 The Financial Times London Page 5 886
Italy's Corruption Scandal: Swiss tired of being Europe's laundrymen Publication 930316FT Processed by FT 930316 By IAN RODGER ZURICH

IT SEEMS that whenever there is an Italian scandal, there is a Swiss connection.

From the Chiasso affair in the late 1970s through to the Tangentopoli affair that is now shaking Italy's entire political system, Swiss banks always appear in a prominent, if rather sleazy, role.

Last week yet another connection emerged when Mr Pierfrancesco Pacini Battaglia was named as one of the main intermediaries funnelling kickbacks from Eni, the Italian state energy group, to political parties.

Mr Pacini Battaglia, now under arrest, apparently managed his funds through a small Geneva private bank called Banque Karfinco, of which he is a director.

Now, however, there are signs that not only the Italians, but also the Swiss, are tiring of what has been a mutually convenient arrangement for decades.

Last weekend, police in the Italian-speaking canton of Ticino confirmed that Mrs Carla Del Ponte, the chief prosecutor, has been receiving special protection for several months. She has been particularly vigorous in investigating Mafia cases.

Later this year, the Swiss federal government plans to pass a package of tough penal law reforms aimed at preventing criminals everywhere from using Swiss banks.

And leaders of the Swiss financial community are urging the authorities to accelerate appeal procedures behind which suspects have been able to hide for years.

'The appeal process is too complicated. It is not in our interest to slow down the process,' Mrs Gertrud Erismann of Union Bank of Switzerland says.

UBS is the other Swiss bank that has been publicly linked so far with the political corruption scandals in Italy. Mr Silvano Larini, a close associate of Mr Bettino Craxi, the former Italian prime minister, opened the so-called 'Protezione' account at UBS's Lugano branch in 1979.

Over the subsequent two years, Mr Roberto Calvi, then president of Banco Ambrosiano, paid Dollars 7m (Pounds 4.9m) into it, and it is alleged that Mr Craxi and Mr Claudio Martelli, the former justice minister, subsequently had access to the account.

UBS was embarrassed by demands from the Geneva police last autumn for information on the account, which were accompanied by an insistence that the client not be informed. UBS felt obliged to appeal on behalf of the client, even though it did not want to hinder the investigation. Geneva police have since allowed the client to be informed and UBS has withdrawn from the appeal.

Switzerland was slow in responding to changing international attitudes to dirty money. In the early 1980s, Bern enraged US authorities by being less than helpful in US demands for help in a few insider trading investigations.

In the late 1980s, the country came to be seen as a main centre for drug money laundering, especially by the Italian Mafia. A 1989 federal parliamentary commission accused the public prosecutor of laxity in pursuing narcotics investigations, and a book with the cheeky title Switzerland Washes Whiter became a best seller.

As so often though, once the Swiss decided to act, they moved quickly and effectively. In August 1990, amendments to the penal code were passed making it an offence for a Swiss banker knowingly to accept money that had been made from criminal activities.

The Swiss Federal Banking Commission backed up the new laws by making clear that it would regard the acceptance of dirty money through negligence as a possible contravention of the banking law's stipulation that the conduct of business be above reproach. Also, banks were henceforth obliged to know the real beneficial owners of their accounts.

This tightening has already had a significant impact. According to one leading Lugano banker, any Italian who reveals that he comes from southern Italy stands little chance of opening an account in Switzerland these days.

However, it does have weaknesses. Swiss bankers point out, for example, that many of the individuals being named in the current Italian scandal would have been welcomed as clients because of their high standing.

Now a second reform package is on the way. Justice ministry officials say it will make membership in a criminal organisation an offence. This is particularly significant with respect to the Mafia and the P2 Masonic Lodge.

Switzerland has treaties of mutual assistance on criminal cases with most countries, including Italy. However, the Swiss will only co-operate with a foreign government if the crime being pursued is also a crime in Switzerland. Thus, it will become easier for the Italian authorities to pursue Mafia and P2 cases in Switzerland.

The new law will also give Swiss bankers the right, if they are suspicious of a client, to tell the police without risking prosecution for violating bank secrecy. This will bring an end to the potential for conflicts of interest that tormented bankers after the 1990 reforms.

The Justice department also intends to set up a specialised office for dealing with organised crime and to establish liaison officers abroad, notably in Washington and at Lyons, the headquarters of Interpol.

All this does not mean that Swiss banks are going out of the financial haven business. For Italians, or anyone else, seeking to avoid tax, it is business as usual. Tax evasion is not a criminal offence in Switzerland.

CH Switzerland, West Europe IT Italy, EC P6011 Federal Reserve Banks GOVT Draft regulations GOVT Legal issues P6011 The Financial Times London Page 5 897
Italy's Corruption Scandal: Foreign competitors may win the ultimate kickback - Scandal threatens to count against Italian companies seeking public sector deals at home and abroad Publication 930316FT Processed by FT 930316 By HAIG SIMONIAN

BUSINESS as usual is the motto at most Italian companies, whether the minority tainted by arrests and allegations of paying kickbacks or the vast majority so far unaffected.

However, the unwinding scandal has not gone unnoticed by Italy's exporters or the thousands of foreign companies operating subsidiaries in the country.

Leading exporters largely brush off the effects of the scandal on their businesses, describing the affair as being limited to domestic public-sector contracts. However, there are already signs that their foreign competitors may be trying to turn matters to their advantage.

So far, there have been no examples of big contracts being lost. However, with other European markets in recession and competition in many of the industrial sectors in which Italians specialise growing ever more cut-throat, it may not be long before an important deal slips through a company's fingers because of the impact of the scandal.

Some state-owned companies may already be feeling the impact. Italstrade, the big civil engineering arm of the Iri state holding company, believes it may have lost its chances of winning a tunneling contract for London Underground's Jubilee line extension because of financial problems at its parent and adverse publicity.

The company, which is part of IRI's loss-making Iritecna building and general contracting subsidiary, has already signed a letter of intent to build a tunnel under the Thames for a section of the new line. But hopes to construct a further part from London Bridge Station appear to be receding after requests for more information and guarantees about the position of the parent company.

Mr Eberhard von Koerber, the deputy chairman of the multinational ABB engineering group, who is also responsible at board level for the Italian market, has had ample reason to get to know the Italian market. ABB is believed to be interested in both the big state-owned engineering groups on the privatisation list - Nuovo Pignone, the turbines and compressors subsidiary of the Eni energy and chemicals concern and Breda Costruzioni Ferroviarie, the railway equipment group owned by the Efim state holding company, now in voluntary liquidation.

Mr Von Koerber was blunt: '. . . The Italian managers with whom I met to discuss (privatisation) are either in jail, disappear at night, or have been fired. That would be inconceivable in Germany.'

Last week, Mr Franco Ciatti, Nuovo Pignone's chairman, was arrested on allegations linked to the corruption scandal. So far, the investigations have not touched BCF.

But ABB itself has been caught up in the net. Earlier this year, Mr Umberto di Capua, head of its big Italian subsidiary, was arrested and briefly detained in San Vittore prison on allegations of kickbacks linked to orders for Milan's new third metro line. The allegations followed the interrogation last year of Mr Ivo Braglia, another ABB executive.

'We all knew that in Italy, things tended to be done differently than in other countries,' said Mr Von Koerber. 'But if there's a strong state role in the economy and legislation which is not very clear on financing parties, it's possible to arrive at the sort of situation which is now being dismantled.'

Italian exporters have had a strong reputation for innovation, technical expertise and a strong commercial sense. Of late their competitive edge has been sharpened by the devaluation of the lira against most major currencies. But with stiff competition in the markets, few should be surprised if their foreign competitors start benefiting as the domestic corruption scandal rumbles on.

IT Italy, EC P99 Nonclassifiable Establishments MKTS Contracts GOVT Legal issues P99 The Financial Times London Page 5 629
Italy's Corruption Scandal: Privatisation candidates in the spotlight Publication 930316FT Processed by FT 930316 By HAIG SIMONIAN

ITALY'S ambitious privatisation programme avoided the taint of the growing scandals until last week, when a series of raids by Milan magistrates against subsidiaries of Eni, the state energy and chemicals group, brought prime candidates for privatisation directly under the scandal spotlight.

Last Monday Mr Franco Ciatti, chairman of the Nuovo Pignone turbines subsidiary of Eni, was arrested on corruption charges, along with Mr Gabriele Cagliari, Eni's chairman, who was also accused of illegal funding of political parties.

On Wednesday night, Mr Raffaele Santoro, Mr Pio Pigorini and Mr Giovanni dell'Orto, chairmen of Eni's Agip petroleum, Snam gas distribution and Saipem exploration subsidiaries respectively, were detained on charges of illegal party funding and falsifying company accounts.

Nuovo Pignone is one of the most prominent candidates for privatisation, while both Agip and Snam had been hoping to float part of their capital under a long-heralded scheme to bring in private shareholders.

The latest developments will complicate a privatisation programme which had already received a cool response from potential buyers. Recession and unattractive strings attached to some of the biggest privatisation candidates mostly explain the lack of enthusiasm.

But matters have been exacerbated by differences within the government over privatisation. Last month for example, Prime Minister Giuliano Amato tried to push aside Mr Giuseppe Guarino, his industry minister, who had become a substantial obstacle to privatisation.

Mr Guarino's refusal to resign his portfolio in favour of Mr Paolo Baratta, who was later appointed privatisation supremo, highlighted the continuing strength of the political opposition to piecemeal sell-offs. Ministers hope the transfer of responsibilities for privatisation from the Industry Ministry will help get the programme off the ground.

Only a handful of transactions have been concluded since the government made privatisation one of its priorities after taking office last year. And the deals which have been completed are small in scale compared with those still to be sold.

Still pending are the disposals of Credito Italiano, Italy's sixth biggest bank, and Nuovo Pignone. both of which were announced in September. Another big privatisation yet to be concluded is that of the food production side of the SME foods, retailing and catering group, and the planned flotation of an initial stake in the Ina insurance group.

SME should be the easiest to sell. The disposal of its food manufacturing activities - and possibly its supermarkets and catering business at a later stage - was advertised this month, and the deal should cause few problems.

But it could still go awry if opponents of the sale try to use the courts to block the complex division of the group into the three or four separate companies essential to the disposals.

Moreover, SME's Naples headquarters are occupied by dissident workers opposing the proposed break-up. They have prevented the retrieval of important documentation needed to pave the way for a sell-off.

There are convincing reasons for the delays in bringing other transactions to fruition. For example, it is believed that Merrill Lynch, the US investment bank sounding out buyers for Credito Italiano, has failed to find a suitable candidate.

Its remit has been complicated by the likely L6,000bn (Pounds 2.7bn) price tag for the 67 per cent stake held by the Iri state holding company and the public tender offer that would subsequently be required under new bourse laws for the remaining shares floating on the stock market.

The sale has also been stymied by poor timing by the government. Efforts to dispose of the well-regarded bank have been complicated by the forthcoming sale of Banca Commerciale Italiana, one of Italy's most prestigious financial institutions. Many buyers, especially the consortia of domestic financial and insurance interests seen as the most likely candidates, are waiting for BCI to come on the block.

The outlook for selling the big Treasury-owned IMI investment banking and insurance concern to a group of savings banks, led by Milan's Cariplo, remains unclear as the long-running saga, now well into its second year, rolls on.

Nuovo Pignone should have been relatively easy to sell, given its strong reputation for turbines and compressors. However, Mr Ciatti's arrest and the fact that much of its business comes from Eni complicates assessments of its value and saleability. The works' council at Nuovo Pignone's Florence headquarters this week called for privatisation to be suspended.

Plans to float Agip and Snam have also been tainted by the corruption scandal. The latest setback comes on top of existing differences in the government over Eni. While some officials want the flotations, probably involving 10-20 per cent of the shares in each subsidiary, to go ahead quickly, others are still pressing for a flotation of Eni itself.

The latest wave of arrests at the group could, surprisingly, speed that process. While the next few months are likely to be turbulent, the call for a 'fresh start' - probably linked to privatisation - could prove irresistible. The blow to some of the group's most powerful subsidiaries, which were previously stressing their independence, may strengthen the hand of those calling for flotation of the group, rather than its subsidiaries.

The Ina insurance group represents one of the government's most attractive candidates. Yet an embarrassing and highly public difference of opinion between the group's chairman and managing director over its restructuring means plans to privatise the company could still be delayed.

Setbacks to the government's timetable mean some smaller privatisations may jump the queue. Prominently placed until last week's arrests were Eni's Savio textile machinery operation and the Agip Coal natural resources operation. However, both transactions may now be held up.

Progress may also be forthcoming in disposing of some of the more attractive assets of the Efim state holding company, now in voluntary liquidation. Formal bids for Efim's big Siv glass subsidiary are expected to be invited later this month.

There has also been considerable behind-the-scenes activity among potential buyers for Efim's Breda Costruzioni Ferroviarie railway equipment maker. In both cases, however, the proceeds will be little more than a drop in the ocean of the government's overall privatisation targets, given the modest financial performance of the two companies.

IT Italy, EC P9611 Administration of General Economic Programs COMP Company News GOVT Legal issues P9611 The Financial Times London Page 5 1052
Italy's Corruption Scandal: Magistrates hold key to unlocking Tangentopoli - They will set the investigation agenda Publication 930316FT Processed by FT 930316 By ROBERT GRAHAM

OVER the weekend the Italian media felt obliged to comment on a non-event. No new arrests had taken place in any of the country's ever more numerous corruption scandals which centre on the illicit funding of political parties through bribes on contracts.

Such arrests are now such a part of daily life that it is an occasion when nothing happens. But this is only a pause.

The anti-corruption drive has gone too far to be halted easily and is now attacking the heart of the post-war politico-economic system. The traditional balance of power has altered and the politicians no longer control the judiciary; or rather that part of the judiciary which matters, the investigating magistrates.

A weak government and a fractious parliament have tried, and failed, to impose a political solution which would limit the scope and consequences of the corruption investigations. As a result the magistrates, particularly those in Milan, are setting the agenda. The speed and scope of the investigations will be determined for the foreseeable future by the ability and willingness of the magistrates to proceed. The public is firmly behind them. Anger is rising as proof accumulates of what has been little short of the rape of the state during the last two decades.

The need for a political solution, which prime minister Giuliano Amato began to explore last month, was and remains real. If Italy's system has been so permeated by corruption, the very institutions of democracy risk being weakened if the judicial surgery is too abrupt and all-embracing.

Second, there is the issue of how guilt is apportioned in such a corrupt system, and whether individuals are to be punished or whether society as a whole should be blamed. Finally, the sheer volume of work at both the investigative, prosecution and the appeal stage threatens to bring an already torpid and bureaucratic judicial system to a standstill.

Italy cannot afford to have the corruption scandals carried through the courts for the next six to 10 years without political instability and serious economic disruption. Already, Italian companies are worried about their image abroad.

It is now clear that the scope for investigation is limitless. What started out a year ago with Milan being dubbed Tangentopolis (literally bribe city) has become Tangentopoli (bribe cities).

Large and small cities alike have seen their favourite sons indicted or their reputations ruined. Milan, Naples, Turin and Rome - the four biggest cities - are without political guidance as the ruling coalitions have been decimated by a combination of arrests and alliances broken in the fall-out from corruption scandals.

In northern and central Italy the political elite is on the retreat, if not disappearing. Political control of the public sector, through state companies and thousands of municipally owned entities, which has been the central element in the corrupting process, has been undermined. To some extent all the big state concerns are involved - Iri, the state holding company; Enel, the electricity authority; Efim, the industrial holding company in liquidation; Eni, the state energy company and Anas, the roads authority.

The enormous bounty of power station contracts in Enel's patronage is emerging as a key source of bribes paid by contractors to the political parties. But Eni is rapidly becoming the centre of attention. Last week, Mr Gabriele Cagliari, the Eni chairman, along with the heads of the company's four main subsidiaries, was arrested on charges of illicit party funding and falsifying accounts.

Magistrates are investigating three main areas of Eni activity:

The involvement of Eni with Banco Ambrosiano prior to the latter's collapse in 1982, and the payment into a Swiss bank account of money for the Socialists;

The reorganisation of the chemicals industry with Ferruzzi's Montedison in 1989-90;

The use of Eni's subsidiaries in providing funds to parties based on foreign contracts (such as gas supplies from Algeria) and the profits derived from dealing in oil and other hydrocarbon commodities through Swiss associates.

All these promise explosive revelations concerning the scale of money taken by individuals and the parties through manipulation of state companies, as well as exposing the 'Swiss connection' in Italian business dealings. The issue of individual enrichment in taking kickbacks has not been touched. At least 30 per cent of the L5,000bn - L6,000bn (Pounds 2.7bn) believed to have been taken annually in 'commissions' went not to political parties but to individuals in kind or cash. Milan magistrates have left this issue to one side.

Other areas which have yet to fall within the magistrates' net include government investment and procurement for the railways, which is planning massive investment in a high-speed train network, and the defence sector. The civil service itself is only just beginning to be touched with investigations into public works, overseas aid controlled by the Foreign Ministry and export credit guarantees.

Equally, the investigations remain essentially a phenomenon of north and central Italy. This is because the grip of the Christian Democrats and Socialists remains strongest in the south and the judiciary there is more susceptible to political pressure. In the south, too, the thrust of magistrates' energy tends to be directed at organised crime.

The party most visibly affected has been the Socialists, but smaller parties have also suffered.

The only parties to emerge with a clean sheet so far are the communist splinter group, Reconstructed Communism, La Rete (The Network, the Sicily-based reform movement), the neo-fascist MSI and the Lombard League, whose rise to power derives precisely from its opposition to the corrupt old system in the north.

These are calling for the corrupt to be punished and would probably be the main beneficiaries if elections were held under the present system of proportional representation. Yet even they recognise that the old system is unworkable in the long term. Only a new parliament elected on a fresh set of electoral regulations is likely to have the moral authority to deal with the issues raised by Tangentopoli.

Ente Nazionale Idrocarburi Ente Nazionale per L'Energia Electtrica Ente Partecipazioni E Finanziamento Industria Manifatturiera IRI Istituto per La Ricostruzione Industriale IT Italy, EC P9222 Legal Counsel and Prosecution P91 Executive, Legislative and General Government P13 Oil and Gas Extraction P9631 Regulation, Administration of Utilities P6719 Holding Companies, NEC CMMT Comment & Analysis GOVT Legal issues P9222 P91 P13 P9631 P6719 The Financial Times London Page 4 1077
Italy's Corruption Scandal: A tale from two cities Publication 930316FT Processed by FT 930316

Rome: The wreckage wrought on the body politic

May 1992

The effects of the scandal reach the capital. Milan's magistrates ponder whether to ask parliament to waive immunity on the outgoing Socialist minister of tourism and a recently re-elected Socialist deputy who is also the brother-in-law of Bettino Craxi, the long-time leader of the Socialist party and former prime minister. Craxi is widely expected to head the government being formed in the wake of last months' national election stalemate.

Jun 1992

The outgoing minister for public works is served notice by Rome's magistrates that he is under investigation. Craxi agrees to withdraw candidature for prime minister. Giuliano Amato, former Socialist treasury minister and head of the special commission looking into Milan scandal, forms government.

Jul 1992

Chamber of Deputies agrees to waive parliamentary immunity on five MPs. A total of 13 MPs and former ministers are now under investigation by Milan magistrates. Nine more are being investigated in other parts of the country.

Dec 1992

Craxi is told he is under investigation by Milan magistrates. Parliament agrees to waive immunity of Socialist deputy leader and former foreign minister Gianni de Michelis so that Venice magistrates can investigate allegations against him. Socialist party executive postpones decision on Craxi's leadership.

Jan 1993

Craxi served with second notice by Milan magistrates, who ask parliament to waive his immunity. The plight of Mr Craxi and the Socialist leadership again raises question mark over fate of Amato coalition, in which Socialists are principal partners alongside Christian Democrats. Rome magistrates investigate purchase by Treasury of buildings in Rome. Forty-four people, including senior civil servants and a former treasury director-general, are charged. Police raid offices of Socialists.

Feb 1993

Claudio Martelli, Socialist justice minister, resigns after being told he is under investigation in Milan. The number of separate investigation notices to Craxi increases to six. Craxi resigns as party leader after 16 years in the job. Gabriele Cagliari, president of Eni, told by Rome magistrates he is under investigation. Two under-secretaries in Budget and Interior ministries are warned. Prominent figures in parties other than Socialists are increasingly involved in investigations. Health minister Francesco De Lorenzo resigns after deputies vote to remove immunity. Finance minister Giovanni Goria resigns. Although not under recent judicial investigation, he has been embroiled in another long-running investigation. Tension rises as magistrates in Rome, Milan and other cities order a wave of arrests. Republican party leader Giorgio La Malfa resigns immediately after being informed he is under investigation. More than 50 deputies and senators are now caught up in the various investigations.

Mar 1993

A hitherto obscure television programme presenting court cases becomes mass viewing. Craxi says magistrates are in co-ordinated plan to decapitate Socialist influence. Amato's four-party coalition agrees on legislation that would transfer the investigation of illegal political funding from magistrates to politically appointed regional prefects. There is public uproar, Milan magistrates object, Environment minister Carlo Ripa di Meana resigns in protest, and President Oscar Luigi Scalfaro refuses to sign the government's decree that would open way for a political solution. Amato wins backing of coalition parties after turbulent parliamentary debate, but widespread protest continues. Amato leaves proposed legislation with a divided parliament. More than 1,000 senior politicians and businessmen are now under investigation, but this is likely to prove to be only the tip of the iceberg.

Milan: The sword hanging over the business community

Feb 1992

The beginnings of what will become known as 'the Milan corruption scandal' is revealed almost accidentally. A Socialist apparatchik is caught taking a L7m (Pounds 3,200) kickback for a cleaning contract at an old peoples' home. Milan's magistrates have been on trail of corruption ever since.

May 1992

The scandal enters its third month with the charging of two leading figures in the construction industry. Six other prominent people in the industry have already been charged. Most notably, Enzo Papi, managing director of Fiat's big building subsidiary, is detained. In all, 26 businessmen, municipal officials and local politicians have now been arrested.

Jun 1992

Number of accused prominent businessmen and politicians rises to more than 40. Police announce that a prominent Socialist killed himself after going to see authorities investigating alleged city hall corruption in Milan.

Jul 1992

Salvatore Ligresti, the king of construction in Milan and one of Italy's richest men, is arrested and shares in companies under his control fall sharply. Seventy-six local and national politicians have been either charged or are under investigation and focus is shifting to industrialists. Scandals claim second suicide victim with death of head of Como-based building group.

Dec 1992

The lira, already buffeted by turmoil in the ERM, for the first time comes under pressure because of Italy's political uncertainty. The government unfreezes L10,000bn (Pounds 4.4bn) in payments overdue to construction companies for public works contracts. Disbursement had been delayed by corruption inquiries.

Jan 1993

Magistrates announce that Paolo Berlusconi, the younger brother of media magnate Silvio Berlusconi, will be put on trial. He is latest of 35 businessmen and politicians who magistrates say will go to trial. Magistrates widen investigations to include reorganisation of chemicals industry in 1990. Under investigation are Eni, the state oil concern, the Ferruzzi Group's Montedison, and Anas, the state road building authority. The number of persons arrested since the beginning of the scandal passes 100.

Feb 1993

Financial markets are rattled by fears of political chaos. Heavy selling of shares, and the lira slides. Intervention restores calm to markets. A total of 105 businessmen, politicians and civil servants are said to have confessed to taking part in a system whereby public contracts were awarded on the basis of illicit payments to fund party organisations. Latest line of investigation centres on the electricity generating industry. More arrests, increasingly involving prominent business figures. Two top Fiat executives are arrested in their Turin homes, one of whom is the group's chief financial officer. Magistrates announce that Raul Gardini, former head of Ferruzzi-Montedison, is under investigation.

Mar 1993

Milan magistrates order arrests linked to reconstruction work in 1987 Valtellina floods disaster. Two officials of state road-building agency Anas among those held. Italy's credit ratings begin to be affected. Standard & Poor's announces downgrading after Moody's places the country's debt under review. The move by Moody's provokes rebuttal from Bank of Italy and Treasury which accuse agency of failing to take account of measures to tackle public sector deficit. Gabriele Cagliari, president of Eni, arrested. Share prices fall, and Bank of Italy forced to support lira. Calm restored to markets. Chairmen of four big Eni subsidiaries arrested, and police raid group's operating headquarters. Head of Sace, the state-run export credit guarantee agency, arrested.

IT Italy, EC P91 Executive, Legislative and General Government P99 Nonclassifiable Establishments CMMT Comment & Analysis P91 P99 The Financial Times London Page 4 1145
Italy's Corruption Scandal: Politicians start feeling downside of family ties Publication 930316FT Processed by FT 930316 By ROBERT GRAHAM

THE CLOSE-KNIT nature of the Italian family is proving to have some disadvantages as the reputations of politicians and businessmen become damaged by close relatives caught up in the scandals.

Take the case of Mr Francesco de Lorenzo, a member of the Liberal party who resigned on February 19 as minister of health. That morning his 89-year-old father, Ferruccio, had been arrested on allegations that he received an illegal commission of L1.7bn (Pounds 741,000) for a series of property deals. Mr de Lorenzo owed his political career to contacts of his father in his political fiefdom of Naples.

His father, a prominent Naples doctor, has been three times a parliamentary deputy, a former under-secretary of health and for years head of the national medical association. The allegations of corruption centred on the property purchases for the doctors' health insurance association which Ferruccio de Lorenzo headed.

Although resignation is rare in Italian politics, Francesco de Lorenzo, as minister in charge of the medical profession, was left with little alternative.

The activities of Mr Michele de Mita forced his well-known elder brother, Ciriaco, to resign from his key post as head of the joint parliamentary constitutional reform commission on March 2. This followed Michele's arrest in connection with an alleged foodstuffs fraud linked to the 1980 earthquake at Irpinia, southern Italy.

Ciriaco, a former Christian Democrat prime minister and heavyweight on the left of the party, is the local potentate around Avellino, one of the areas most affected by the earthquake and where misuse of disaster relief funds has been most keenly felt.

Others have been more fortunate in limiting the damage caused by the involvement of some family members with the law. Mr Bruno Tronchetti Provera, head of Mariani, a company involved in a consortium setting up a gas distribution network in Milan, was arrested for allegedly paying a bribe of L1.6bn (Pounds 697,000) to a Republican party politician. Although Bruno is brother of Marco, chief executive of Pirelli, and although Mariani is linked by shareholdings to the tyre group, the two have managed to stay separate.

On the other hand the higher public profile of Mr Silvio Berlusconi, the media magnate, has also brought his links with the Socialists under scrutiny; and he has had to make very clear that his Fininvest is no longer involved in Milan property dealings.

Mr Craxi, who risks losing parliamentary immunity to face charges of alleged corruption, never ceases to castigate the press and the magistrature for singling out his family for vilification.

According to Mr Mario Chiesa, a Socialist party functionary and the first person caught in the scandal and to confess to Milan magistrates, he helped 'Bobo' (Bettino's son) into politics using funds illicitly collected from contract kickbacks. 'Bobo' has now withdrawn from politics.

Stefania, Bettino's daughter, has been portrayed by the press as unfairly benefiting from her father's influence and the Socialists' control of the second state television channel to set up a TV production company.

Mr Craxi is also foisted with the plight of his brother-in-law, Mr Paolo Pillitieri, former mayor of Milan, who faces charges of illicit party financing.

IT Italy, EC P91 Executive, Legislative and General Government PEOP Personnel News GOVT Legal issues P91 The Financial Times London Page 4 560
Italy's Corruption Scandal: Billions paid in public sector contract bribes Publication 930316FT Processed by FT 930316 By ROBERT GRAHAM ROME

FROM confessions of businessmen, politicians and civil servants it has become clear that virtually all transactions from the mid-1980s onwards in the public sector were subject to bribes and commissions. This was also true of a considerable slice of private construction activity, as well as supply contracts.

How much was creamed off in bribes and illicit commissions each year? How much did this cost the economy?

Total public spending in 1992 was L135,000bn (Pounds 59bn)-L70,000bn (Pounds 30bn) on the purchase of goods and services and L65,000bn (Pounds 28bn) in investments.

According to confessions to the investigating magistrates, supply contracts routinely carried a commission of between 5 and 10 per cent.

Public works contracts, which totalled L30,000bn, carried a 3 per cent commission. But this rose to 4 per cent in the case of private treaty deals with Anas, the roads authority (which accounted for 10 per cent of public works contracts).

Building permits and property development permissions carried a commission of 6-8 per cent of the value of the project. The construction industry had a turnover of L156,000bn in 1992.

On a crude median of 5 per cent for both supply and investment projects, and total public spending of L135,000bn in 1992 - then L6,750bn (Pounds 3bn) was paid out last year in bribes. If this is reduced because some expenditure reflects projects on which commissions have already been paid, then the figure could be cut to a minimum of L5,000bn (Pounds 2.2bn).

But this figure only includes public sector spending. Public works contracts represent a mere 20 per cent of the construction industry's annual turnover of L156,000bn.

When building permits and permissions for property developments are factored in, it would not be unreasonable to put a figure of around L6,000bn (Pounds 2.6bn) per year being creamed off.

How much of this went into private pockets and how much to the political parties is hard to tell.

According to those who have confessed to the magistrates, at least 30-40 per cent of total bribes paid went directly to personal enrichment - much more in the case of the private construction sector and the granting of building permits.

It is also difficult to distinguish between benefits in kind which have been connected to party work - free travel, gifts, apartments, telephones, etc-and direct self-enrichment.

The cost to the economy has to be measured partly by:

the extent to which contract values are increased to absorb the bribes/commissions;

the increased cost of contracts due to the absence of competition. Ministry officials say public works contracts could well have been inflated by 15 per cent or more.

There is also the hidden cost of high public spending, reflected in the public sector deficit equivalent to almost 11 per cent of gross domestic product and the expense of both borrowing and servicing Italy's huge national debt, equivalent to about 107 per cent of GDP.

This latter element is extremely important: if at the beginning of the 1980s corruption had a silver lining, in that it encouraged greater private consumption expenditure and even investment into the economy, by the end of the 1980s the accumulated impact was simply to fuel ever-higher public spending, thus substantially raising the national debt.

IT Italy, EC P9199 General Government, NEC RES Capital expenditures GOVT Legal issues P9199 The Financial Times London Page 4 573
World Trade News: Delors to meet Clinton on trade row - The meeting may offer an opportunity to defuse escalating US-EC tensions Publication 930316FT Processed by FT 930316 By LIONEL BARBER BRUSSELS

MR Jacques Delors, European Commission President, will hold talks with President Bill Clinton in Washington on Thursday, a long-planned meeting which will offer a chance to defuse the escalation in EC-US trade tensions.

A senior EC official said Mr Delors would urge Mr Clinton to resist the temptation to act unilaterally to resolve trade disputes and to co-operate with the EC on a growth initiative to revive the world economy. 'This is an important meeting for them to start a good working relationship,' the official said.

The Clinton administration's focus on rebuilding US competitiveness has unnerved Brussels, where fears of a resurgent America taking advantage of a politically and economically weakened EC are rife. Mr Delors himself has occasionally raised the threat of US hegemony, rather than the balanced partnership of equals.

The EC was taken aback last Friday after the Clinton administration unexpectedly withdrew from talks aimed at settling a dispute over 'Buy European' and 'Buy American' clauses covering rules for government procurement. The move escalated tensions already inflamed by EC-US disagreements on commercial aircraft subsidies, steel subsidies and the stalled Gatt Round.

Last Friday, Mr Mickey Kantor, US trade representative, said the US would 'most probably' bar European companies from winning certain federal contracts in telecommunications and power generation, starting from March 22.

A spokesman for Sir Leon Brittan, EC commissioner for external affairs, said the Commission was considering all options, including retaliation.

EC officials described the US trade representative as 'unpredictable.' His abrupt decision to call off negotiations embarrassed Sir Leon who claimed a recent trip to Washington had cemented relations with him.

Mr Kantor broke off negotiations after learning the EC would not waive Article 29 in the EC utilities directive which gives EC companies a 3 per cent price preference over foreigners and favoured treatment to EC bidders offering more than 50 per cent local content.

US United States of America QR European Economic Community (EC) P9721 International Affairs P9611 Administration of General Economic Programs GOVT Government News P9721 P9611 The Financial Times London Page 3 372
World Trade News: Brussels 'open skies'ambitions scotched Publication 930316FT Processed by FT 930316 By DAVID GARDNER BRUSSELS

EC transport ministers yesterday agreed to co-ordinate more closely the external civil aviation agreements each member state now negotiates bilaterally.

But they scotched European Commission ambitions to negotiate 'open skies' deals on behalf of the EC as a bloc, except on a case-by-case basis requiring a prior mandate from the Twelve.

The Commission said immediately it would take the EC Council of Ministers to the European Court - 'in the next few days', said Mr Abel Matutes, transport commissioner.

Brussels has long argued for a common external aviation policy to win better access for EC airlines, and prevent a free-for-all inside Europe which might put at risk its own hard-won deregulation of air transport.

But ministers decided member states 'shall remain fully responsible for their relations with third countries in the field of aviation unless and until action has been taken by the Council.'

The Council based itself on the transport articles of the EC treaty, whereas the Commission maintains that external aviation agreements come under the the treaty's commercial clauses, which give Brussels broad competence.

Ministers did agree, however, that the EC should establish common rules on aviation relations with other countries. The Twelve and the Commission will thus set up an experts group to:

Exchange information on and consult on external negotiations;

Sort out conflicts of interest between states, and possible infringements of EC law;

Identify areas of common interest where the Community should negotiate as Twelve.

They also agreed yesterday on common equipment standards for air traffic control. These are aimed at integrating 54 control centres, using 31 incompatible systems and 70 different computer languages.

QR European Economic Community (EC) P451 Air Transportation, Scheduled P9721 International Affairs TECH Standards GOVT Government News P451 P9721 The Financial Times London Page 3 309
World Trade News: Kantor seeks new rules in free market game Publication 930316FT Processed by FT 930316 By NANCY DUNNE WASHINGTON

WHEN he cancelled this week's talks with the EC, Mr Mickey Kantor, the US trade representative, was saying that the rules of the game must change.

His message was that his patience for the squabbling and last minute bandage 'solutions' which he believes have produced little gain for American companies in the past was running out.

Senator John Rockefeller, a Democrat from West Virginia, summed up the US mood on Capitol Hill last week when he said: 'Our policy has been that we are for free trade, that we are for improved market access and a Uruguay Round, while our strategy has been, in any given crisis, to do the minimum necessary to avoid some kind of congressional action. Neither that policy or strategy has accomplished much.

'Marathon trade negotiations are now well into their seventh year. Our trade deficits have begun to rise again. Numerous bilateral problems, particularly with Europe, seem permanently on the table.'

Mr Kantor has said much the same, though more diplomatically, since taking office.

Mr Kantor has repeatedly stated his aim: 'Comparably open markets.' The 'comparable' can be defined unilaterally by the US through sanctions or through real negotiation. He has also clearly defined his key role as the enforcer of US trade laws. The 1988 Trade Act required the administration to report on the extent to which foreign governments discriminated against US products and services in government procurement, and to act appropriately to remove the discrimination.

In 1991 Mrs Carla Hills, then the US trade representative, said France, Germany and Italy had discriminated against foreign suppliers of heavy electrical equipment or telecommunications equipment. Consultations were requested and Mrs Hills vowed that, if US concerns were not resolved within 60 days, the president would implement sanctions to take effect by January 1993.

Two months after that deadline, Mr Kantor is prepared to act. He would also 'be pleased to sit down with the EC,' he said.

Meanwhile, he has been taking comments from US companies, most of which support the initial sanctions. There could be a second tranche of if the EC retaliates - a move Mr Kantor said he does not expect.

Most US companies do not recommend the US withdraw from the Gatt procurement code, a step Mr Kantor is considering. Many believe the US should bring a complaint to Gatt on the grounds the EC utilities directive fails to provide national treatment for US companies.

The EC can be pardoned for its 'surprise' at Mr Kantor's impatience. For four years it dealt with a trade representative who believed it to be 'a failure' if sanctions went into effect. Mr Kantor has seen the results of past US accommodation. He has not liked what he sees.

QR European Economic Community (EC) US United States of America P9641 Regulation of Agricultural Marketing P9721 International Affairs GOVT Government News P9641 P9721 The Financial Times London Page 3 502
World Trade News: China's Gatt talks resume Publication 930316FT Processed by FT 930316 By FRANCES WILLIAMS GENEVA

NEGOTIATIONS on Chinese membership of Gatt resumed yesterday in Geneva, but little progress is expected over the three days of talks following unsuccessful discussions between China and the US earlier this month, writes Frances Williams in Geneva.

Neither the US nor the EC has sent senior negotiators to Geneva, and part of the US team has been delayed by severe weather. China had hoped to rejoin Gatt this year, but US officials now say membership is a long way off.

CN China, Asia US United States of America QR European Economic Community (EC) P9721 International Affairs GOVT Government News P9721 The Financial Times London Page 3 122
World Trade News: Credit insurance protest in Canada Publication 930316FT Processed by FT 930316 By BERNARD SIMON TORONTO

A GOVERNMENT proposal to allow Canada's Export Development Corporation to enter the domestic credit insurance business has drawn strong protests from British and US-owned insurance companies in Canada.

It is the most contentious part of a draft bill, expected to be introduced in parliament this week.

The EDC, Canada's export finance and credit insurance agency, wants to expand into underwriting domestic credit risks to help it win back export business which it has lost in recent years to private-sector insurers offering both domestic and export coverage.

The corporation has seen some of its biggest export accounts move to foreign-owned underwriters, notably subsidiaries of Trade Indemnity of the UK, and American International Companies and Continental Insurance of the US.

These companies have expanded aggressively in Canada over the past few years. Trade Indemnity, which set up in Ottawa in 1989, already underwrites about CDollars 4bn in sales, split roughly equally between domestic and export business. Mr Rick Doyle, its president, says: 'If big exporters have found better service and one-stop shopping in the private sector, why should the government come in?'

The private insurers complain that the EDC's status as a government agency gives it many advantages, including tax-free status and the absence of requirements to set up reserves against liabilities. 'It would be difficult for us to compete against a company that could basically buy the market,' Mr Doyle says.

The EDC declined to comment on the legislation until it is presented. However, it is said to be concerned that the private insurers are 'cherry-picking', in other words, taking its biggest and best export insurance customers, and leaving it with the more risky business from mid-sized and small companies.

The new legislation will also expand the EDC's export-finance mandate, with a view to making it more competitive with European and Japanese export-finance agencies. The Corporation is expected to become more active in pre-export financing, including the ability to make direct loans against inventory and working capital assets. The EDC will also be empowered to enhance a financing proposal by taking an equity stake in a company or a project, and will be given greater leeway to provide support for leasing machinery and equipment.

Canadian exporters have complained that the EDC's services are increasingly falling behind those offered by other countries' export finance and credit insurance agencies.

CA Canada GB United Kingdom, EC US United States of America P6351 Surety Insurance P9721 International Affairs GOVT Draft regulations P6351 P9721 The Financial Times London Page 3 431
UN general hopeful of Bosnia aid breakthrough Publication 930316FT Processed by FT 930316 By ROBERT MAUTHNER, Diplomatic Editor and AGENCIES

GENERAL Philippe Morillon, the French commander of United Nations forces in Bosnia, said yesterday he was hopeful a convoy would bring aid to the besieged Moslem town of Srebrenica in eastern Bosnia today and evacuate women and children.

The flamboyant general, who has set up a command post in Srebrenica in a gesture of solidarity with its thousands of suffering people, made his announcement after talks with General Ratko Mladic, the Serb commander, near Bratunac, a Serb-held town some 15km away.

A UN spokesman in Sarajevo said it was planned to send in a medical team to evacuate 35 to 40 seriously wounded women and children along with a convoy carrying food and medicine. 'We are 99 per cent certain this convoy will get in,' the spokesman said. Gen Morillon told French radio: 'I hope that tomorrow morning we'll have a road convoy coming here that will in turn evacuate women and children.' Srebrenica has been under siege for 11 months and its population of about 60,000 has not received any aid by road since December, although some supplies have been dropped into the area in recent days by US aircraft.

In another interview, the general told French television that he may leave Srebrenica today. The general has promised to stay in the town until relief supplies were allowed through. At the same time, the UN commander said he had informed his superiors before embarking on his controversial trip and denied he had exceeded his mission.

He said that in his talks with the Serbs yesterday he had discussed his demands for an immediate Serb ceasefire and a halt to the fighting. The Serb commander, Gen Mladic, had demanded a statement from the Bosnian presidency cancelling a planned counter-offensive on Srebrenica.

Bosnia's deputy president, Mr Ejup Ganic, said after speaking by telephone to Gen Morillon that the UN commander indicated the Serbs expressed their willingness to have a ceasefire in the Srebrenica region and his government had agreed.

Bosnian radio said that several thousand more refugees arrived in Srebrenica yesterday as the Serbs continued their offensive. Mr Laurens Jolles, an official of the UN High Commissioner for Refugees who left Srebrenica on Sunday, said up to 40 people were dying of cold and hunger daily.

'I have seen scenes I would never have expected in the 20th century,' Mr Jolles said. 'Thousands of women and children living together in the snow, without any shelter, huddled around fires. Most have not eaten for four to five days.'

BA Bosnia-Hercegovina, East Europe P9721 International Affairs GOVT Government News PEOP Personnel News General Morillon, P French Commander of United Nations Forces (Bosnia) P9721 The Financial Times London Page 2 466
Banks fail to face brave new world: Report says European banking is ill-prepared for Emu Publication 930316FT Processed by FT 930316 By WILLIAM DAWKINS

MOST European Community banks are dangerously unprepared for the business and technical changes required to adapt to monetary union.

They have only a vague idea of when and how union will come about and only rough estimates of the time and cost of the changes - running as high as FFr1.5bn (Pounds 180m) per bank over at least two years, and possibly as many as five.

There will be upheaval on the European currency markets immediately prior to the fixing of exchange rates. That will be followed by intense international competition, which will see weaker banks going out of business as corporate and private customers take advantage of the single currency to seek the keenest prices and best services across frontiers.

Trading between European currencies will then tail off, to be succeeded by more active, and hence riskier, trading between the European currency, the dollar and the yen.

That is the alarming picture in a study published today by the Paris office of KPMG Peat Marwick Consultants after interviews with more than 50 leading European Community banks - one of the most detailed assessments yet of the practical impact of monetary union.

'There is real danger of the banking industry being harmed if the uncertainty. . . continues,' warns the report, which calls on governments to agree a firm date for monetary union and decide how it is to come about.

Most EC banks reckon that full monetary union will happen, but not until 1999 or later, in any case well after the Maastricht treaty timetable. They assume it will start with an inner core of countries, based on Germany, France and the Benelux trio and that national currencies will run in parallel with the single European currency for a while. This twin system will be more costly to banks, retailers and businesses than a straight switch. But bankers think politicians will want a twin-track transition with two currencies to reassure the public.

Broadly, monetary union will sharply accelerate the greater integration of European banking and the cross-border alliances between banks already under way.

In detail, banks' currency departments will be the hardest hit. Their revenues will fall sharply with the expected decline in trading between European currencies.

Banks, including continental ones, expect a trend towards centralised currency trading in London in the aftermath of union. That is irrespective of whether or not Britain rejoins the EMS and is because of lower UK taxes and the relative ease with which underperforming traders can be fired, thanks to Britain's opt-out of the Maastricht treaty's social chapter, says the survey.

Retail banking will be the next hardest hit by increased competition, with a fall in profits as market inefficiencies are exposed. Banks are expecting to concentrate on selling existing products, especially plastic cards, to new foreign clients, rather than developing new products in this high-risk environment. Retail banks will lose income from the declining need for travellers' cheques and exchange services. They know heavy investment in cross-border payments for small transactions will be needed, but believe this will cut operating costs in the medium to long term, says the study.

Competition will also intensify in corporate banking, where the ease with which customers will be able to compare pricing across Europe will make it harder for individual banks to persuade business customers that they offer special value.

As in retail banking, customers will demand better international payment systems. One practical hurdle here is how to reconcile the high-speed payments systems practised in continental Europe, where data only is exchanged between banks, with the UK system where banks physically exchange payment instruments. Bankers say they want a single European payment mechanism for large commercial transactions, in contrast to the several that today exist alongside Swift, the dominant Belgian-based payment system.

Investment banking will be less affected, since services such as mergers, buy-outs and project finance are more linked to general European integration than to the detail of monetary union. However, a successful and solid single European currency could help attract more cash to European equities. Monetary union will boost moves towards a single European equity trading system by making it easier for buyers and sellers to compare share prices in different community stock markets, says the study.

European banks have not experienced an upheaval like this in recent memory, and are finding it hard to identify exactly where the main costs will arise.

The biggest cost will probably be changing computer systems for handling payments, customer information, automatic cash machines and - for retailers - redesigning point of sale terminals. Banks also expect to spend more on training.

Beyond that, the nearest parallel is the upheaval British banks experienced with the introduction of decimal coinage in 1971. Barclays alone purchased Pounds 10.5m of bronze coins, weighing 3,500 tonnes and shifted them to 1,000 storage centres before distribution to branches on the change-over day. That exercise took two years.

More recently UK banks took six months to phase in a new Pounds 10 note. European monetary union will be on an awesomely different scale.

Consequences of Ecu/Emu: Survey of the European Banking Industry, Ecu3,000 from Michel Demont, partner in charge of the financial sector, KPMG Peat Marwick Consultants (for the European Financial Management and Marketing Association) Tour Fiat, Cedex 16, 92084 Paris La Defense.

QR European Economic Community (EC) P9721 International Affairs P602 Commercial Banks ECON Balance of trade CMMT Comment & Analysis P9721 P602 The Financial Times London Page 2 930
Spate of accidents at Hoechst leads to safety concerns Publication 930316FT Processed by FT 930316 By DAVID WALLER FRANKFURT

ONE person died and another suffered third degree burns yesterday after an explosion and fire at Hoechst's main plant near Frankfurt.

This is the sixth accident that Hoechst has suffered in less than a month - the first involving the loss of life - and it immediately prompted calls from regional and national politicians for tougher safety controls on the entire German chemicals sector.

The explosion took place at 7.44 am when two men were preparing a section of plant used in manufacturing polyvinylalcohol, or Mowiol, for repair works. Hoechst said the cause of the accident was as yet unknown.

The accident comes less than a month after Hoechst accidentally released 10 tonnes of chemicals - some potentially toxic - from its Griesheim plant. The chemicals descended on the Frankfurt suburb of Schwanheim.

Although no-one was hurt, dozens of residents visited doctors after the leak and there was an expensive and high-profile clean-up campaign.

Since the incident in late February, the company has been plagued with a series of accidents. Only last Friday, Hoechst inadvertently discharged 100 litres of a poisonous solution into the Rhine from a plant in Wiesbaden.

Hoechst said yesterday it regretted the loss of life in the latest accident and would co-operate with investigations launched yesterday by the local police and legal officials from the state of Hesse.

Mrs Ursula Tober, a Hoechst press officer, said that the company was saddened and bewildered by the series of accidents. 'We simply cannot explain it to ourselves why all this has happened all at once.'

Mr Klaus Topfer, Germany's federal minister for the environment, yesterday vowed to intensify pressure on the chemicals industry to improve safety standards. Hoechst had already begun an examination of its safety and other procedures in the wake of the first accident last month.

Troublesome brew, page 29

Hoechst DE Germany, EC P28 Chemicals and Allied Products TECH Standards TECH Safety COMP Company News P28 The Financial Times London Page 2 346
Ways of promoting growth sought by EC Publication 930316FT Processed by FT 930316 By LIONEL BARBER BRUSSELS

THE European Commission is considering fresh measures to stimulate growth because the response from EC member states remains inadequate, Mr Henning Christophersen, economics commissioner, said yesterday, writes Lionel Barber in Brussels. Mr Christophersen said after a meeting of EC finance ministers in Brussels that the Commission may put forward new ideas on promoting investment and job creation at the EC summit in Copenhagen in June. 'More needs to be done,' he said. The Danish presidency of the EC has called for a 'jumbo' meeting of finance ministers from the Twelve and the six members of the European Free Trade Area on April 19 in Luxembourg.

QR European Economic Community (EC) P9611 Administration of General Economic Programs GOVT Government News P9611 The Financial Times London Page 2 142
Bundesbank backs deal on solidarity pact Publication 930316FT Processed by FT 930316 By QUENTIN PEEL BONN

LEADING figures in Germany's banking community and members of the Bundesbank council yesterday welcomed the cross-party agreement on finance for a solidarity pact for east Germany, in spite of concern about a rise in public sector borrowing.

Mr Reimut Jochimsen, president of the state central bank in North Rhine-Westphalia, and a leading Bundesbank council member, described the deal as a great success. He greeted it with 'great relief', while stressing that many of the figures had yet to be agreed in detail.

Mr Hilmar Kopper, chief executive of Deutsche Bank, believed the central bank would not be entirely satisfied, but would continue to relax its monetary policy.

The deal is expected to provide a substantial increase in funds for investment in east German industry, and double the money available for a housing modernisation programme from DM30bn (Pounds 12.7bn) to DM60bn.

Interest payments on the credit will be directly subsidised by the federal budget in Bonn, and the central government will also assume responsibility for servicing DM31bn in outstanding debts on the east German housing stock. The costs are all likely to add to the government's net borrowing requirement in the next three years. A further rise in borrowing in the current year is almost inevitable, because of an agreement to provide an extra DM2bn for job creation schemes, pushing up the 1993 borrowing requirement of the central government from DM51bn to DM53bn.

However, the Finance Ministry in Bonn said yesterday that no figure had been put on the increase in the borrowing limit of the Treuhand privatisation agency, reported at the weekend also to be raised by DM30bn.

A spokesman for the ministry said it was intended to keep the borrowing increase of the Treuhand within an agreed 'buffer' of DM8bn per year for 1993 and 1994, on top of the DM30bn per year it is currently allowed to borrow. The extra money is intended both for restructuring 'core industries' which cannot immediately be sold, and for cleaning up the ecological damage caused by the old industries.

Overall, the solidarity pact will provide the five eastern states with DM55.8bn from 1995 to finance their running costs, DM51bn at the expense of the central government, and DM4.9bn from the western states.

The Bundesbank council meets on Thursday amid continuing market speculation about the likelihood of further interest rate cuts.

Editorial Comment, page 21

DE Germany, EC P9311 Finance, Taxation, and Monetary Policy P601 Central Reserve Depositories COMP Company News P9311 P601 The Financial Times London Page 2 431
Kohl speaks out in support of Yeltsin Publication 930316FT Processed by FT 930316 By QUENTIN PEEL, DAVID BUCHAN and CHARLES LEADBEATER BONN, PARIS, TOKYO

CHANCELLOR Helmut Kohl of Germany yesterday issued a ringing endorsement of Russian President Boris Yeltsin, warning that not only his domestic reform policy but the entire process of peaceful international co-operation was threatened by the political backlash in Moscow.

In a statement on political developments in Russia, Mr Kohl declared that the reforms pursued by Mr Yeltsin and his government were in the interests not only of Russia and its people, but also of all other countries, above all Germany. 'I therefore emphatically endorse this process,' he said.

President Francois Mitterrand of France will be carrying a similar message of support for Mr Yeltsin when he arrives in Moscow today. The visit will be 'a chance for the French president to reaffirm how strongly France wants Russia to recover its balance', an Elysee spokesman said.

In his statement, Mr Kohl said: 'President Yeltsin and the political groups which support him, striving for democracy and the rule of law, a market economy and not least, a policy of peaceful co-operation with the world community, are increasingly threatened by forces which want to stop the reform process in Russia.'

Although Germany had reached the limits of its financial capacity to support Russia, the debate within the G7 over further ways of providing economic assistance 'underlines the importance the western countries attach to the continuation of the reform process,' he said.

The German government also attached vital importance to its bilateral relations with Russia, he added, in a statement which could be clearly seen as a direct warning to Mr Yeltsin's opponents in the Russian Congress of Deputies.

'Russia and Germany today enjoy relations which are free of tension, trusting and friendly. This is due in good measure to the achievements of Boris Yeltsin. We want these relations to be developed in mutual interest and trust, so that a free, democratic Russia, based on a market economy, remains a peaceful, calculable and stable partner both for Germany and for all our neighbouring states.'

Meanwhile, Japan seems set for a clash with the US, France and Germany over its opposition to an emergency summit to sanction further aid to Russia. The Japanese government is opposed to a summit meeting to consider the issue even though a meeting of G7 officials in Hong Kong over the weekend agreed to consider plans for further aid.

Japan insists it cannot consider further aid until Russia accepts Japan's claim to sovereignty over the four islands off the northern tip of Japan known as the northern territories.

RU Russia, East Europe DE Germany, EC P9721 International Affairs GOVT Government News P9721 The Financial Times London Page 2 461
Business as usual Publication 930316FT Processed by FT 930316

A Russian man speaking to an adviser at the Moscow privatisation centre yesterday when, despite the continuing political crisis, 1m shares in the Zil car factory were put on sale to the public at more than 100 locations. The sign in the background reads 'Privatisation'

RU Russia, East Europe P9611 Administration of General Economic Programs PEOP Personnel News P9611 The Financial Times London Page 2 73
Energy tax move by EC ministers Publication 930316FT Processed by FT 930316 By DAVID GARDNER BRUSSELS

EUROPEAN Community finance ministers yesterday reserved the right to make the final decision on whether to introduce the controversial energy tax proposed by Brussels to stabilise carbon dioxide emissions.

Their proprietorial move came as the current Danish presidency of the EC confirmed it was calling a special meeting of environment and energy ministers on April 23 to try to break the logjam on the tax and the EC's overall emissions strategy.

There are still serious reservations among the Twelve about how the tax - which would rise to the equivalent of Dollars 10 a barrel of oil by 2000 - would work. But introducing it at all has been made conditional on the EC's main trading partners following suit.

The finance ministers yesterday said they were encouraged by the recent US proposal to introduce a fuel tax, but emphasised it was still not clear what was planned by the EC's other main competitors, such as Japan.

Denmark is nevertheless still hoping a decision can be reached at June's meeting of finance ministers.

QR European Economic Community (EC) P9721 International Affairs RES Pollution GOVT Taxes P9721 The Financial Times London Page 2 206
G7 support for Yeltsin urged Publication 930316FT Processed by FT 930316 By ALAN FRIEDMAN NEW YORK

Mr Yuli Vorontsov, the Russian ambassador to the United Nations and a senior adviser to President Boris Yeltsin, yesterday urged the G7 nations to provide 'a programme of sustained assistance' in order to shore-up Mr Yeltsin's economic reforms, Alan Friedman writes from New York.

Mr Vorontsov, who made his remarks during a news conference at the New York Federal Reserve Bank, said: 'The Russian people need to see that the west is still interested in a transition to a market economy.'

Mr Gerald Corrigan, president of the New York Fed, announced yesterday that the Russian-American Bankers' Forum, a joint programme with nearly Dollars 8m (Pounds 5.6m) of 1993 funding, would host an eight-week programme this summer in the US that would train 250 middle and senior-level officials of Russian commercial banks in all aspects of banking and finance.

RU Russia, East Europe US United States of America P9721 International Affairs P602 Commercial Banks GOVT Government News MGMT Management P9721 P602 The Financial Times London Page 2 181
Russian compromise fades away Publication 930316FT Processed by FT 930316 By JOHN LLOYD and ANDREW GOWERS MOSCOW, LONDON

IT IS now clear that Mr Boris Yeltsin means to fight for supremacy. The president, say his advisers, has concluded that no further compromises are possible with his hardline opponents in the Congress of People's Deputies, and that he will strive, within constitutional limits, to beat them.

As Mr Yegor Gaidar, the former premier and now a key presidential aide, said yesterday: 'The result of the Congress was to show that the policy of compromise has more or less reached its limit.'

Mr Anatoly Chubais, the privatisation minister who was singled out for personal attack in the Congress session that ended on Saturday, agreed. Speaking in London yesterday during an official visit, he said the Congress had 'destroyed the balance of power' in Russia, and that the president's response would be 'strong and active, within the framework of existing laws'.

The tactic now being considered by the president is to proceed to a plebiscite which, his advisers believe, he can do within the law on referendums. They say this law allows a poll of the population through the initiative of the citizens themselves, through the collection of 1m signatures. This plebiscite, likely to ask whether the people wish to see the president or the parliament in control of policy and perhaps also if they wish to see private ownership of land, may be supervised by international observers to ensure fair play.

At the same time, according to Mr Gaidar, the president may wish to secure support from the centre by appointing to the cabinet figures from the centre of politics - in particular from the Civic Union bloc, which includes the Russian Union of Industrialists, Vice-President Alexander Rutskoi's Free Russia party and other forces.

That support from this quarter is still possible for Mr Yeltsin was underscored by Mr Oleg Rumyantsev, the young deputy who is secretary of the constitutional commission of parliament and leader of the Social Democratic Centre party. Noting that 'one main feature of the last Congress was that the centre did not make their views known', he said that 'the solution to the deepening political crisis can only be found with the involvement of the centre forces'.

In contrast to the veiled threats by Mr Yeltsin to take special measures to enforce his rule, most aides are anxious to avoid an authoritarian solution. Mr Chubais said: 'A lot of deputies thought last week that they would be arrested in the Kremlin. That is not the president's decision; he will take the legal course.'

The parliamentary leadership, for its part, is certain that a referendum cannot be undertaken constitutionally. Mr Nikolai Ryabov, the first deputy chairman of parliament who in a speech on the second day of Congress last week unequivocally demoted Mr Yeltsin to second place after the parliament, said flatly at the weekend that 'any move to a referendum which involves spending state funds must be regulated by law and needs to get parliamentary consent'.

However, the constitutionality of the parliament's behaviour will now be challenged in the Constitutional Court. A group of 57 deputies from the pro-presidential Democratic Russia bloc yesterday published a statement disputing whether the decisions taken last week, and at the Seventh Congress in December, were constitutional.

The terrain of the struggle is the constitution but the prize is raw power, and the right to conduct reform. Mr Chubais said a positive result in the proposed referendum would be the start of a process leading to new elections and the adoption of a new constitution. On the other hand, he warned, if Mr Yeltsin's parliamentary opponents retain the upper hand, 'at the next Congress (scheduled for June), we will lose the presidency or the president himself'.

RU Russia, East Europe P91 Executive, Legislative and General Government GOVT Government News P91 The Financial Times London Page 2 652
Rise in output lifts recovery hopes: Lawson calls for Pounds 6bn tax increase to curb fiscal deficit Publication 930316FT Processed by FT 930316 By PETER MARSH and ALISON SMITH

A SHARP RISE in manufacturing production has provided a favourable background for today's Budget by adding to expectations about a UK recovery.

Manufacturing production rose a seasonally adjusted 0.8 per cent in January compared with the previous month, well above expectations in the City.

News that manufacturing output was the highest since August 1991 coincided with growing speculation that Mr Norman Lamont, the chancellor, will seize the opportunity in his Budget speech to raise taxes from 1993-94 to curb the growing fiscal deficit.

Pressure on Mr Lamont to take bold action on this front increased last night after Lord Lawson, the former Tory chancellor, said failure to raise taxes by Pounds 6bn would be a 'serious mistake', as he became the latest in a series of former Tory cabinet ministers to urge tax rises.

At a conference on currency markets in London, Lord Lawson said a tax rise of this magnitude 'could prove a political and economic turning point that is so badly needed'.

Also, in a surprising departure from his previous enthusiasm for the European exchange rate mechanism, Lord Lawson said it was 'only a matter of time' before the ERM broke down after the pressures of German unification and the drive towards a single currency robbed the system of its flexibility.

Further indications that the economy may be turning came yesterday with a survey by Trade Indemnity, credit insurers, showing that exporters have increased their order books in the past three months, taking advantage of the 15 per cent devaluation in sterling since the UK left the ERM in September.

The Ombudsman for Corporate Estate Agents, an industry-appointed body, provided further evidence of a revival in the housing market by reporting a strong rise in sales last month.

In recent weeks, Mr Lamont has been advised by many in the City and by his own backbenchers that he should head off the possibility of Britain moving towards Italian-style budget deficits through a tough tax increase. According to this argument, the more favourable auguries about the economy mean that the risk of stifling an upturn by a fiscal tightening has been greatly reduced.

With many City economists expecting the gap between government spending and income to reach some Pounds 50bn in the financial year starting next month, the word from Whitehall yesterday was that Mr Lamont is planning to make his Budget speech about half an hour longer than the normal 60 minutes or so in order to deal adequately with an explanation of fiscal policy.

Yesterday's release of the manufacturing figures was accompanied by a warning from the Central Statistical Office that the monthly data may have been distorted by the timing of the Christmas holidays. Even so, in the three months to the end of January, manufacturing output rose by 0.7 per cent against the same period a year earlier.

All production industries - including energy, water and manufacturing - showed a 0.4 per cent drop in output between December last year and January. Output of oil and gas fell 6 per cent between the two months, largely because of operating diffiintends culties in the North Sea.

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy P9611 Administration of General Economic Programs ECON Industrial production CMMT Comment & Analysis P9311 P9611 The Financial Times London Page 1 579
BA wins temporary approval for USAir link-up Publication 930316FT Processed by FT 930316 By GEORGE GRAHAM, NIKKI TAIT and DANNY GREEN WASHINGTON, NEW YORK, LONDON

THE US gave temporary approval yesterday to British Airways' plans for a partnership with USAir but demanded that London and Washington renegotiate their aviation treaty to allow US airlines greater access to British airports.

Mr Federico Pena, US transportation secretary, agreed to BA's request for 'code-sharing' with USAir, which the two carriers hope will create a 'seamless service' by listing USAir's US flights and BA's transatlantic flights under the same codes in computer bookings systems.

He also approved plans for USAir to lease aircraft and crews to BA for London-Baltimore and London-Pittsburgh flights, but not for London-Charlotte.

Mr Pena said BA's initial Dollars 300m (Pounds 210m) investment in USAir did not breach US laws restricting foreign ownership of US airlines to 25 per cent, but that the second and third phases of the proposed deal, under which BA would invest a further Dollars 450m, could not be completed unless the US Congress changed the law on foreign ownership.

This, he hoped, would provide the incentive for the UK to renegotiate the Bermuda 2 treaty: 'If Congress doesn't act, British Airways will have invested Dollars 300m and cannot proceed further. That is the hook.' He said he would review the deal in a year.

The 'big three' US carriers - American, United and Delta - which lobbied against the code-sharing arrangement, reacted to the announcement with 'disappointment and puzzlement'.

'There's not a bit of it which makes any policy sense,' said one adviser.

BA welcomed Mr Pena's statement, saying it would begin the code-sharing arrangement to three US cities - Cleveland, Syracuse and Rochester - on May 1, as previously announced.

Sir Colin Marshall, BA's chairman, said he was delighted that passengers would be able to fly more easily between airports on the two airlines' networks.

Mr John MacGregor, the transport secretary, said he broadly welcomed the arrangement and hoped it would attract more passengers to BA from airports it does not serve directly. He added, echoing Mr Pena's comments on bilateral co-operation, that he remained committed 'to achieving greater liberalisation between our two countries across the Atlantic.'

Mr Pena said that, although he did not like the terms of the Bermuda 2 treaty between the UK and the US, the US could not disregard it while insisting that Australia and Japan abide by the provisions of their bilateral aviation treaties with Washington.

Lex, Page 22

British Airways USAir Group Inc US United States of America GB United Kingdom, EC P451 Air Transportation, Scheduled COMP Strategic links P451 The Financial Times London Page 1 448
Stock and Currency Markets Publication 930316FT Processed by FT 930316

----------------------------------------------------------- STOCK MARKET INDICES ----------------------------------------------------------- FT-SE 100: 2922.4 (+6.5) Yield 4.14 FT-SE Eurotrack 100 1153.62 (+7.76) FT-A All-Share 1424.95 (+0.3%) FT-A World Index 146.3 (-0.1%) Nikkei 18,086.18 (+48.66) New York: Dow Jones Ind Ave 3,442.41 (+14.59) S&P Composite 451.43 (+1.6) ----------------------------------------------------------- US CLOSING RATES ----------------------------------------------------------- Federal Funds: 3 1/8 (2 15/16%) 3-mo Treas Bills: Yld 3.033% (3.013%) Long Bond 102 7/8 (103 1/4) Yield 6.894 (6.865%) ----------------------------------------------------------- LONDON MONEY ----------------------------------------------------------- 3-mo Interbank 6% (5 15/16%) Liffe long gilt future: Jun 106 7/8 (Jun 106 29/32) ----------------------------------------------------------- NORTH SEA OIL (Argus) ----------------------------------------------------------- Brent 15-day Apr Dollars 18.75 (18.71) ----------------------------------------------------------- Gold ----------------------------------------------------------- New York Comex Apr Dollars 329.8 (328.5) London Dollars 328.65 (327.75) ----------------------------------------------------------- STERLING ----------------------------------------------------------- New York: Dollars 1.435 (1.43235) London: Dollars 1.4345 (1.434) DM 2.3825 (2.3875) FFr 8.1025 (8.12) SFr 2.1825 (same) Y 170.00 (168.75) Pounds Index 77.2 (77.3) ----------------------------------------------------------- DOLLAR ----------------------------------------------------------- New York: DM 1.6623 (1.665) FFr 5.6335 (5.658) SFr 1.52285 (1.52) Y 118.605 (118.065) London: DM 1.6615 (1.6655) FFr 5.6475 (5.6625) SFr 1.522 (1.5225) Y 118.5 (117.75) Dollars Index 66.8 (66.7) Tokyo open Y 118.05 -----------------------------------------------------------

GB United Kingdom, EC JP Japan, Asia US United States of America P6231 Security and Commodity Exchanges P3339 Primary Nonferrous Metals, NEC P1311 Crude Petroleum and Natural Gas MKTS Market data COSTS Commodity prices P6231 P3339 P1311 The Financial Times London Page 1 230
Chinese premier accuses Patten of breaking pact Publication 930316FT Processed by FT 930316 By SIMON HOLBERTON, TONY WALKER and PHILIP STEPHENS HONG KONG, BEIJING, LONDON

MR Li Peng, the Chinese premier, yesterday accused Mr Chris Patten, Hong Kong's governor, and the British government of 'perfidiously' dishonouring agreements on the colony's transition to Chinese rule in 1997.

Mr Li, addressing the opening session of China's parliament, departed from his prepared text and made one of the sternest attacks yet by a Chinese leader since relations deteriorated last year after Mr Patten disclosed plans to extend Hong Kong's democratic reforms.

The speech followed the publication on Friday of Mr Patten's legislation to enact such reforms. Beijing's reaction hampers any early resumption of talks on the colony's future, and adds to pressures on Mr Patten from an increasingly nervous local business community.

The Chinese premier's address sent Hong Kong share prices sharply lower. The Hang Seng index fell 315.79, or 5.1 per cent, to close at 5,854.61, leaving it a full 10 per cent below its peak, reached a week ago.

Senior business leaders called for calm. Sir William Purves, chairman of HSBC Holdings, the owner of Hongkong Bank and of Midland Bank of the UK, said he remained optimistic about Hong Kong's future in spite of the political problems between the colony and China.

He warned, however, that domestic business confidence could be affected and that foreign investors might be 'frightened off' if the row dragged on. 'I very much hope that they (Britain and China) can sit down and devise a way forward for the 1995 elections,' he said.

Britain stressed that it remained willing to hold 'unconditional' talks with Beijing on its plans for political reform in Hong Kong.

But in an otherwise conciliatory statement in the House of Commons, Mr Douglas Hurd, foreign secretary, insisted that London would not accept the downgrading of Hong Kong's role in any negotiations. Speaking with the overwhelming support of MPs from all the main parties, Mr Hurd stressed there was still time for talks with Beijing to modify Mr Patten's plans.

But the foreign secretary flatly rejected a charge by Mr Li that Mr Patten's proposals were in contravention of the Basic Law governing Hong Kong's future. Referring to Beijing's demand that the status of Hong Kong officials in any talks be downgraded, he said: 'The implication of that was not one we could accept'.

Mr Li told some 3,000 delegates at the National People's Congress that Mr Patten's democratic reform proposals ran completely counter to Britain's 'commitment' to bring Hong Kong's system into line with the Chinese-controlled 'Special Administrative Region' after 1997.

'The British government,' he added, 'shall be held exclusively responsible for all serious consequences arising from its latest action.'

Mr Li described as a 'sacred right' China's resumption of sovereignty over Hong Kong in 1997 which 'shall not be interfered with and sabotaged in any way.' But he also observed: 'We hope for co-operation, not confrontation.'

Hong Kong politicians, stockbrokers and political analysts, noted that he had not ruled out talks.

Mrs Selina Chow, a senior member of Hong Kong's conservative political grouping known as the Co-operative Resources Centre, said: 'It seems that there is room for further discussion.'

But it emerged yesterday that a planned meeting of the Sino-British Joint Liaison Group for this month was unlikely to proceed. A Foreign Office official said the two sides had not discussed an agenda for the meeting.

Call for rapid reform revives fears of overheating, Page 8 Backing for Hurd, Page 13 World stocks, Page 45

HK Hong Kong, Asia CN China, Asia GB United Kingdom, EC P9721 International Affairs GOVT Government News P9721 The Financial Times London Page 1 618
BBC governors to hold private talks over Birt affair Publication 930316FT Processed by FT 930316 By RAYMOND SNODDY, DAVID OWEN and GARY MEAD

GOVERNORS of the BBC are expected to meet privately tonight to try to find a solution to the row over Mr John Birt and his tax affairs before their formal meeting on Thursday.

The private dinner in London will be the first time the governors have met collectively since the revelation that Mr Birt was for six years a freelance consultant rather than a BBC staff member - in spite of being deputy director-general - and was paid via his private company, John Birt Productions.

The dinner echoes a meeting two years ago when Mr Marmaduke Hussey, BBC chairman, pushed through the controversial decision not to advertise the post of director-general but to nominate Mr Birt as director-general designate.

Mr Stuart Bell, the Labour frontbench spokesman on the City, yesterday called for Mr Birt and Mr Hussey to resign.

He said the taxpayer was entitled to 'better standards' from the BBC and Inland Revenue and pledged to raise the matter in the house. 'Why did the Inland Revenue accept such schemes when it was clear that the person who was self-employed had only one employer?'

However, support for Mr Birt came yesterday from the BBC board of management and a group of senior correspondents. BBC vice-chairman Lord Barnett last night described criticisms of Mr Birt as a 'grotesque slur on a very fine man'. The director-general, he said, had been given unanimous support from the board of management which had a letter to that effect published in yesterday's Times.

Six senior BBC journalists, led by Mr Peter Jay, the economics editor, sent a similar letter of support to the Times.

The position of Mr Hussey seems less secure, with some governors extremely angry that they were not told about Mr Birt's employment status.

Mr Hussey yesterday returned to Broadcasting House, the BBC's headquarters, after a visit to Australia and Hong Kong, apparently determined to tough out one of the most controversial episodes in the corporation's recent history.

Mr Hussey is understood to be prepared to take the resignations of other governors, if necessary, rather than resign himself. Five of the board of governors retire between now and July, including three of the most influential: Mr Keith Oates, the managing director of Marks and Spencer; Mr Bill Jordan, the trade union leader; and PD James, the novelist.

Mr Oates has revealed that he knew a month ago how Mr Birt was paid during negotiations on his new contract as director-general, and has expressed opposition to such an arrangement.

Tomorrow provides a further opportunity for the governors to assess the situation when they meet the General Advisory Council of the BBC, the 41-member nationwide group whose views are sought on a variety of BBC issues.

Editorial Comment, Page 21

John Birt Productions British Broadcasting Corp GB United Kingdom, EC P4833 Television Broadcasting Stations PEOP Personnel News COMP Company News Birt, J Director General British Broadcasting Corp P4833 The Financial Times London Page 1 515
World News in Brief: Blazing exit Publication 930316FT Processed by FT 930316

Roy of the Rovers, the cartoon footballer who has featured in his own comic for almost 40 years, makes a blazing exit tomorrow. In the magazine's final issue, Roy will be pictured amid wreckage after his helicopter crashes.

GB United Kingdom, EC P2731 Book Publishing PEOP Personnel News P2731 The Financial Times London Page 1 66
World News in Brief: Catholic murdered Publication 930316FT Processed by FT 930316

The outlawed Ulster Freedom Fighters said they murdered Robert Shaw, 56, a Roman Catholic shot dead near Belfast. Mr Shaw was recovering from heart surgery.

GB United Kingdom, EC P9229 Public Order and Safety, NEC PEOP Personnel News GOVT Legal issues P9229 The Financial Times London Page 1 59
World News in Brief: Rugby player dies Publication 930316FT Processed by FT 930316

Rugby player Seamus Lavelle, 30, of Edgware, north-west London, died after being critically injured during a clash in a weekend junior club match.

GB United Kingdom, EC P7941 Sports Clubs, Managers, and Promoters PEOP Personnel News P7941 The Financial Times London Page 1 55
World News in Brief: Aids doctor named Publication 930316FT Processed by FT 930316

Bolton Area Health Authority named the doctor who died of Aids after working in the town. Dr Yarab Almahawi, 33, was diagnosed HIV positive while in Northern Ireland, where he worked at three hospitals.

GB United Kingdom, EC P80 Health Services PEOP Personnel News P80 The Financial Times London Page 1 63
World News in Brief: Joy-ride girl killed Publication 930316FT Processed by FT 930316

Fourteen-year-old Sally Ann Cattell of Birmingham died when the stolen car she was driving crashed after a police chase.

GB United Kingdom, EC P9229 Public Order and Safety, NEC PEOP Personnel News P9229 The Financial Times London Page 1 51
People: Ritchie switches off from Tyne Tees TV Publication 930315FT Processed by FT 930401

Ian Ritchie is this week leaving his post as Tyne Tees Television's managing director, following his decision not to stand for re-election as a board member of Yorkshire-Tyne Tees Television Group at Friday's agm in Leeds.

Ritchie will be succeeded as Tyne Tees managing director by John Calvert, currently the group director of personnel. No announcement has yet been made on who is to fill Ritchie's other role of group deputy chief executive.

Although Ritchie's departure has been officially described as amicable, insiders say it reflects tension within the group over the extent to which Tyne Tees TV, headquartered in Newcastle, could maintain its autonomy following last year's merger with its larger Leeds-based neighbour, Yorkshire Television.

A week before Friday's AGM, an executive board meeting of the group discussed plans for a radical restructuring, under which Tyne Tees would have played a much more subsidiary role within the merged company. 'That was the final battle at which Ian lost the war,' said one insider.

He said he understood the Independent Television Commission's support had been sought for the restructuring, but it had said it could only comment once plans had been implemented.

Yesterday, however, Yorkshire Television firmly denied that it was running down the Tyne Tees operations and dismissed suggestions that Mr Ritchie had left after disagreements with Mr Clive Leach, Yorkshire-Tyne Tees managing director.

'Tyne Tees will continue to have a strong production base,' the company said, adding that nothing would be done 'that would affect the licence commitment of the company, or the commitments given at the time of the merger'.

Yorkshire and Tyne Tees were among the highest bidders for franchises in 1991, paying Pounds 37.7m and Pounds 15m respectively - a combined weekly payment of more than Pounds 1m. Last November the group announced 292 job losses, at that time nearly a quarter of the combined workforce.

Calvert joined Yorkshire Television as director of personnel in August 1988; previously he was director of industrial relations for the ITV network, based in London. He became a director of Yorkshire Television Holdings in 1989.

Tyne Tees Television Holdings GB United Kingdom, EC P4833 Television Broadcasting Stations PEOP Appointments P4833 The Financial Times London Page 10 380
Arts: Parisian cathedral of culture - Architecture Publication 930315FT Processed by FT 930318 By COLIN AMERY

I do not often sit down to a candlelit dinner in a French cathedral but last week I had the opportunity, between mouthfuls of lamb and couscous, to study the Romanesque sculptures of the cathedral of St Lazare at Autun. At the same time I was able to contemplate the outstanding 12th-century carvings of the tympanum of the Vision of the Apocalypse at the abbey church of Moissac; and I scarcely had to turn my head to see the remarkable relationship between architecture and sculpture at the basilica of St Madeleine at Vezelay. Within reach of my table were the slender sculptures from Chartres as well as columns, capitals, chancels and Carolingian conceits from all over France.

I was, of course, in a cathedral of culture, at an elegant Parisian event to mark the re-opening of the Musee National des Monuments Francais at the Palais de Chaillot. The story of this museum goes back to the 1880s when the architect Eugene-Emanuel Viollet-le-Duc (1814-1879) had the idea that the French public should have the chance to see, in Paris, the high points of French architecture and sculpture of the Middle Ages. He put together this remarkable assembly of cast copies of important elements of buildings in what was then the new Palais du Trocadero, which had originally been designed by the architect Davioud for the Paris Universal Exhibition in 1878.

The display was always intended to be didactic, offering the visitor the opportunity to make comparative analyses of stylistic developments. Viollet-le-Duc was a scholar and historian and his architectural activity consisted principally of repair and restoration, including work on monuments including Notre Dame and the Sainte Chapelle in Paris. He wrote a dictionary of French architecture and this museum is an effective monument to his conviction that architects can and should learn from the past. He saw the parallels between Gothic structures and the development of 19th-century engineering.

As the original progenitor of the museum, Viollet-le-Duc would have approved of the way it has suddenly taken on a new lease of life. The original Trocadero was transformed in 1937 by the architect Carlu into the Palais de Chaillot, as the centrepiece of the Paris Universal Exposition of that year. Today these former exhibition buildings gather around the steps and stylish fountains of the Trocadero, paying homage to the Eiffel Tower. They remain resolutely of the 1930s and provide an extraordinary contrast to the architectural collections housed there.

For a long time the casts have been seen as little more than dusty relics, stranded in the 1930s splendour of the Chaillot. It has taken the dramatic energy of Mr Jack Lang and his ministry of education and culture to see the potential of this important museum. It has also taken an enormous amount of work and inspiration from the young curator - Mr Guy Cogeval, who came here from the Louvre; in only six months he has achieved a considerable transformation.

It begins in the new entrance hall which has been designed by a young architect, Jean-Christophe Denise. This is a handsome light space in the spirit of Carlu. It has a most stylish cafe-restaurant with a marvellous view of the fountains of the Trocadero and the Eiffel Tower (the furniture is based on Carlu's original art deco designs); there is also a new bookshop. The clean lines of this hall provide a cool setting for the four giant fragments of the reproduction of the sculpture - 'la danse de Carpeaux' - originally created by Paul Landowski in 1931. These look dramatic and surreal, mounted at a high level on large plinths.

The hall is accessible to all visitors to the museums in the Palais de Chaillot, including those of the theatre and cinema. (The Musee du Cinema is likely to enjoy a close relationship with the renovated Musee national des Monuments Francais because of Mr Cogeval's great interest in film and his plans to create events that explore both the plastic and the cinematic arts.)

To visit the great halls upstairs that house the maquettes, casts and models is a thrilling experience, although in time the displays will probably be reordered and captioned to make them both more instructive and more enjoyable. Mr Cogeval is anxious to make more of the amazing collections of topographical and architectural photographs stored here. They will form part of the large programme of temporary exhibitions.

The first exhibition to be held is called 'Marseille a Paris', a version of the very successful exhibition held in Marseilles. Its subject is the city in the 19th century, considering both the physical character of the changing city and the artistic activity within it at the time. A large variety of artefacts ranging from contemporary models and maps to paintings and plans, drawings and sculptures is displayed to convey the commerce and creativity of one entire city at a peak moment of its growth. (The installation here is sometimes inevitably in conflict with the permanent installation of the museum, but in 1994 there will be a full-scale temporary exhibition space.)

Marseilles grew and prospered in the 19th century, its artistic flowering as aesthetically mixed as any other city at the time. It is probably right to show the whole range so that comparisons of quality can be made. Relatively unknown history painters are shown as seriously as old masters, and posters and plans rub shoulders with fine drawings. It is a complex and dense exhibition, giving a sense of a city touched by the exoticism of its African trade and yet solidly rooted in the Second Empire in its architecture and monuments.

The renewal of this museum in Paris is important for the broadening of our architectural culture. It will take a lot of imagination to build on the solid foundations of the unique collection. The resurrection has just begun, but I am sure Mr Cogeval will ensure that it continues with both scholarship and excitement. It is a museum to watch.

FR France, EC P8412 Museums and Art Galleries P8712 Architectural Aervices CMMT Comment & Analysis P8412 P8712 The Financial Times London Page 11 1027
Construction Contracts: Newcastle stadium project Publication 930315FT Processed by FT 930318

The redevelopment of Newcastle United FC's north stand (pictured above) at St James's Park has begun following the award of a Pounds 5.6m design and construction contract to the BALLAST NEDAM CONSTRUCTION company.

The redevelopment calls for replacement of the 4,000 standing capacity with a new stand and two wrap-around stands to the east and west of the new stand which will provide seating for approximately 11,100 people.

The main structure will be built in steel which will support the pre-cast concrete terrace deck, stair and wall components.

Ballast Nedam Construction International GB United Kingdom, EC P1542 Nonresidential Construction, NEC MKTS Contracts P1542 The Financial Times London Page 10 119
The Week Ahead: Results due Publication 930315FT Processed by FT 930318

UNITED Biscuits' full-year results on Thursday will be heavily scarred by the profits collapse at Keebler, its US subsidiary, and a consequent restructuring charge. With margins still under pressure, analysts forecast group pre-tax profits of about Pounds 160m, down from Pounds 211.3m last time.

The McVitie's division is thought to have benefited from a stronger year-end, as well as from contributions from European acquisitions. A small improvement is forecast for the Ross Young's frozen foods business, though KP Foods' results fell back slightly.

Annual profits from English China Clays, due today, will reflect the problems of the paper industry, its major customer. Paper makers have been trying to share their pain with suppliers while ECC is also suffering competition from the US. Analysts are looking for a fall in profits from 1991's Pounds 115.4m pre-tax to Pounds 85m-Pounds 95m. However, under FRS 3 the numbers should look better, with a rise to around Pounds 100m from Pounds 79.3m.

The end of the UK-quoted banks reporting round comes today with results from HSBC Holdings. HSBC, which acquired Midland Bank last summer, is expected to announce pre-tax profits of between Pounds 1.6bn and Pounds 1.8bn for 1992.

Guinness, on Thursday, is expected to report a 17 per cent decline in 1992 pre-tax profits to Pounds 795m, with an exceptional charge of Pounds 125m for the reorganisation of the group's Scotch whisky operations and Spanish brewing business accounting for most of the shortfall on 1991's Pounds 956m.

Spirits' trading profits will reflect the impact of difficult conditions in the UK, Japan, and some European markets. A 1.5 per cent rise to Pounds 760m is expected. Brewing profits are forecast to rise from Pounds 244m to Pounds 265m. The contribution from LVMH, the French cognac and champagne group, is likely to be about Pounds 23m lower at Pounds 100m.

Arjo Wiggins Appleton, the papermaker, is likely to report on Thursday a drop in pre-tax profits of around one-third to Pounds 160m. It is suffering from the slowdown in the continental economies and excess capacity.

Laporte, the UK chemicals group, reports its full-year results today. During the takeover of Evode earlier this year, the company predicted that its pre-tax profits would fall from Pounds 97.2m to Pounds 86m. Analysts expect the full-year dividend to rise from 18.9p a share to between 19.3p and 19.7p per share. Analysts will be more interested in the group's forecasts for the remainder of the year. More than a third of Laporte's sales are in north America.

Rentokil, the pest control, plant hire and environmental services group, is expected to report on Thursday another big jump in pre-tax profits for 1992. Analysts are expecting profits of about Pounds 115m-Pounds 122m (Pounds 94.6m). A full-year dividend of 2p-2.5p (1.7p) is forecast.

Pre-tax profits at IMI, the Birmingham engineer reporting today, were running 9 per cent down on 1991 at the halfway stage. That trend looks likely to have continued for the full year as the problems of the UK economy and the particular problems of the titanium market outweigh the strength of the building products business in Germany and the drinks dispense division. A likely outcome is taxable profits of about Pounds 64m for 1992 with a maintained final dividend of 5.8p.

United Biscuits (Holdings) Rentokil Group English China Clays HSBC Holdings Guinness Arjo Wiggins Appleton Laporte IMI GB United Kingdom, EC P2099 Food Preparations, NEC P2052 Cookies and Crackers P2038 Frozen Specialties, NEC P1455 Kaolin and Ball Clay P1459 Clay and Related Minerals, NEC P6712 Bank Holding Companies P2085 Distilled and Blended Liquors P2621 Paper Mills P2899 Chemical Preparations, NEC P7342 Disinfecting and Pest Control Services P7353 Heavy Construction Equipment Rental P3585 Refrigeration and Heating Equipment P3429 Hardware, NEC FIN Annual report CMMT Comment & Analysis P2099 P2052 P2038 P1455 P1459 P6712 P2085 P2621 P2899 P7342 P7353 P3585 P3429. The Financial Times London Page 8 656
Campaign to protect pools jobs Publication 930315FT Processed by FT 930318

UNIONS and pools companies have formed an alliance to campaign for 'a level playing field' after the introduction of the National Lottery.

The campaign team includes the managing directors of Vernons and Littlewoods pools companies and leaders of Usdaw, the shopworkers' union. It claims the lottery will be given unfair advertising and tax advantages which could cost thousands of jobs.

Littlewoods Pools Vernon Pools GB United Kingdom, EC P8631 Labor Organizations P7999 Amusement and Recreation, NEC COMP Strategic links P8631 P7999 The Financial Times London Page 6 98
Boost for Lib-Lab pact advocates Publication 930315FT Processed by FT 930318 By IVO DAWNAY

ADVOCATES of an electoral pact between Labour and the Liberal Democrats received a boost yesterday when an opinion poll revealed that together the opposition parties would sweep the country, Ivo Dawnay writes.

The Gallup findings, taken from a sample of 1,034 voters in the first week of February, showed 58 per cent would support a new Lib-Lab pact while just 26 per cent would vote Conservative.

The result is certain to be brushed aside by the Labour leadership, which dismissed a call from the party's candidate in Newbury, Berkshire, at the last general election to allow the Liberal Democrats a free run in the coming by-election. Mr John Smith, the party leader, has always argued that Labour must win elections outright.

Furthermore, Labour's relations with the Liberal Democrats have been more than usually strained recently because of Mr Paddy Ashdown's decision in November to back the government in the so-called Maastricht paving debate - won by the Conservatives by just four votes.

Mr Alan Clark, the former defence minister, has confirmed that Newbury Conservatives have rejected him as their candidate for the by-election. He has not been included on the shortlist of 18.

GB United Kingdom, EC P8651 Political Organizations COMP Company News P8651 The Financial Times London Page 6 223
Bombay Stock Exchange plans to resume trading today Publication 930315FT Processed by FT 930318 By STEFAN WAGSTYL

The Bombay Stock Exchange is planning to resume trading today and re-open sooner than expected in a bid to restore business confidence in India's commercial capital, writes Stefan Wagstyl.

Trading will be carried out in a makeshift trading room set up over the weekend to replace a large new trading centre which has been destroyed. Trading will be limited to an hour.

Exchange officials were persuaded to try to re-start today after meetings with Mr P V Narasimha Rao, the prime minister, and Mr Sharad Pawar, the chief minister of Maharashtra state, which includes Bombay.

Bombay police found and defused a bomb hidden in a scooter parked near a busy railway station in the city centre. The police said the scooter had not been moved since Friday and had probably been placed by Friday's bombers.

Mr A S Samra, the city's police commissioner, said last night that police had questioned several people in connection with the bombings, but none was suspected of being involved, and no one had been detained.

Bombay Stock Exchange IN India, Asia P6231 Security and Commodity Exchanges P9229 Public Order and Safety, NEC TECH Services P6231 P9229 The Financial Times London Page 5 214
International Company News: Deutsche Telekom to start private cellular arm Publication 930315FT Processed by FT 930318 By ARIANE GENILLARD BONN

DEUTSCHE Telekom, the German telecommunications state monopoly, will create a private subsidiary to operate its cellular telephone networks and fight mounting competition in the domestic market, Mr Helmut Ricke, the chief executive announced.

The subsidiary, Deutsche Telekom Mobilfunk, will have a basic capital of between DM300m and DM1bn and will start operating in January 1 1994. Sales for the first year are expected to be DM3.5bn (Dollars 2.1bn) and to grow to DM8bn by 2000.

The move could pave the way for the group to privatise other divisions, except its traditional telephone services which, according to the national constitution, must be under state administra-tion.

The company has been urging the government to push ahead with full privatisation. Talks on the issue reopened last week in Bonn between the ruling coalition parties and the opposition Social Democrats, whose approval is needed to change the constitution.

The subsidiary will operate the existing C and D1 cellular telephone networks, which compete with the D2 network operated by Mannesman, the German engineering group.

Other competitors include a consortium headed by Thyssen and Veba, the German industrial groups, Bellsouth of the US and Vodafone of Britain which was recently awarded a licence to develop and operate a new network, with 3m subscribers expected by the end of the decade.

Deutsche Telekom also announced it will join forces with Preussag, the German steel and engineering group, and Alcatel Sel, to form a company which will recycle electronic goods.

The company also announced the creation of a venture with a consortium of Ukrainian companies to develop telecoms in the former Soviet republic.

Deutsche Telekom Deutsche Telecom Mobilfunk Preussag Alcatel Sel DE Germany, EC P4812 Radiotelephone Communications P4813 Telephone Communications, Ex Radio P9631 Regulation, Administration of Utilities P36 Electronic and Other Electric Equipment P3312 Blast Furnaces and Steel Mills COMP Company News COMP Joint venture P4812 P4813 P9631 P36 P3312 The Financial Times London Page 17 338
UK Company News: 11% stakeholder decides to reject Airtours' bid Publication 930315FT Processed by FT 930318 By RICHARD GOURLAY

PHILLIPS AND Drew Fund Management, a 10.8 per cent shareholder in holiday company Owners Abroad, is understood to have decided not to accept the Pounds 294m hostile bid from rival Airtours.

The decision follows the news last Friday that Mercury Asset Management would cast its 15 per cent shareholding behind Airtours

PDFM's decision will revive confidence in the Owners camp ahead of the close of the bid tomorrow. Its loyalty could turn out to be the deciding factor that narrowly allows Owners to retain its independence.

Both holiday companies will be anxious to see whether Thomas Cook, the travel agency, enters the market to buy Owners shares this morning.

The German-controlled group and its sister, LTU, the German tour company, have proposed a commercial tie-up with Owners and last week made a conditional offer for 12.5 per cent of Owners' shares at 150p if the Airtours' bid fails. At Friday's close Airtours' paper offer was worth 149.3p.

Meanwhile, Airtours is today likely to switch the focus of its attack. The company will argue that shareholders should examine the likely shape of the Owners' share register and the number of large shareholdings that would overhang the market should the bid fail.

MAM and Airtours, with seven per cent of Owners' shares at the moment, would be likely sellers as would other shareholders who assented the offer, Airtours will argue. Up to about 20 per cent of Owners would be held by either directors or Thomas Cook.

Mr David Crossland, Airtours chairman, said yesterday that this would severely restrict liquidity and the Thomas Cook stake would effectively give the Germans a blocking interest and control.

'The downside of an independent Owners Abroad is a frightening scenario,' he said. 'The Germans are still trying to get control of a public company, and a fairly substantial one, in England.' He added: 'Owners Abroad will end up a satellite of the German company which will view it as bid proof.'

The Airtours' chairman said that the tie-up had been 'cooked up to spoil our bid.'

Owners' advisers rejected the argument about the potential overhang. They said Thomas Cook's tender would soak up some of the shares and that there were buyers of Owners if its price fell. There could also be yield support about 130p.

'People's understanding of Thomas Cook deals is much better now,' an adviser said. 'Institutions and markets may re-rate Owners Abroad.'

Phillips and Drew Fund Management Airtours Owners Abroad Group GB United Kingdom, EC P4725 Tour Operators COMP Acquisition P4725 The Financial Times London Page 16 444
UK Company News: Sotheby's falls to Dollars 6.5mas auction income dives Publication 930315FT Processed by FT 930318 By PETER PEARSE

PRE-TAX profits at Sotheby's Holdings, the auction house which is controlled by the Detroit-based Taubman family but still quoted in London and New York, tumbled from Dollars 21.5m to Dollars 6.49m, or Pounds 4.57m sterling, in 1992.

The main cause of the fall was that pre-tax income from auctions declined to Dollars 4.02m (Dollars 18.9m) on revenues up slightly at Dollars 200.9m (Dollars 193.9m), though profits from financial services slipped to Dollars 5.21m (Dollars 7.81m) on revenues down at Dollars 14.5m (Dollars 20.6m).

However real estate profits grew to Dollars 2.09m (Dollars 312,000) on revenues ahead at Dollars 9.63m (Dollars 7.83m).

The company said: 'Auction sales increased modestly' to Dollars 1.13bn (Dollars 1.1bn). Operating income emerged at Dollars 1.1m (losses Dollars 3.82m), though this excluded income from Sotheby's principal activities sharply down at Dollars 1.77m (Dollars 15.9m) and one-off restructuring costs of Dollars 4.86m. This resulted in operating losses from the auction activities of Dollars 1.99m (profits Dollars 12.1m).

Earnings per share dropped to 7 cents (25 cents).

The company said there had been improvements in certain areas and that the Impressionist and Modern market had been more stable. Here the Dollars 10m barrier was broken for the first time since 1990 when Henri Matisse's L'Asie was sold for Dollars 11m. It added that in 1992 it had sold 70 works for more than Dollars 1m, against 51 in 1991.

Sothebys Holdings GB United Kingdom, EC US United States of America P7389 Business Services, NEC FIN Annual report P7389 The Financial Times London Page 16 275
Salvador defence minister bows to US pressure Publication 930315FT Processed by FT 930316 By DAMIAN FRASER MEXICO CITY

EL SALVADOR'S defence minister has offered to resign, after the US threatened to withhold military aid unless he and other blacklisted officers were removed in 15 days.

The offer by Mr Emilio Ponce, described by El Salvador's vice-president as a 'patriotic and positive gesture', came as the United Nations prepared to publish today a long-awaited report on human rights atrocities in the 1980s. The report is expected to name high-ranking military officers, politicians, businessmen and some guerrillas as responsible for war crimes and human rights abuses.

President Alfredo Cristiani, under pressure from the army and his right-wing party, has struggled to block the publication of the report, arguing that this would further inflame tensions and damage the process of national reconciliation.

Mr Ponce was one of more than 100 military officers who had to be purged under the UN peace accords signed last year, but Mr Cristiani refused to sack him and 14 other senior officers. The pressure from the US to remove offending officers is the first sign of its flexing its muscles in Central America.

After announcing his offer, Mr Ponce published a Defence Ministry analysis of the dangers facing El Salvador: 'Communism has not disappeared. In El Salvador, its immediate objective is the destruction of the armed forces to consummate its assault on power.'

SV El Salvador, Central America P9121 Legislative Bodies P9721 International Affairs PEOP Personnel News P9121 P9721 The Financial Times International Page 3 256
Moslem leaders assemble to discuss Bosnian peace plan Publication 930315FT Processed by FT 930316

In Sarajevo, the Moslem leaders assembled to discuss a peace plan for the former Yugoslav republic drawn up by international mediators Mr Cyrus Vance and Lord Owen.

About 200 people - including members of the Bosnian presidency, parliament, government and military, together with leading intellectuals and clerics - attended the meeting.

Meanwhile, there were indications that the Bosnian Serb delgation might be late in arriving in New York.

YU Yugoslavia, East Europe BA Bosnia-Hercegovina, East Europe P9721 International Affairs GOVT Government News P9721 The Financial Times International Page 3 102
World News in Brief: Hardy bequest Publication 930315FT Processed by FT 930316

St Michael's church, Stinsford, Dorset, immortalised by Thomas Hardy in his novel Under the Greenwood Tree, has been left Pounds 70,000 in the will of an American professor of English literature.

GB United Kingdom, EC P8661 Religious Organizations PEOP Personnel News P8661 The Financial Times International Page 1 59
Senior BBC staff rally behind Birt Publication 930315FT Processed by FT 930315 By RAYMOND SNODDY and NEIL BUCKLEY

BOTH THE BBC board of management and a group of senior BBC journalists have rallied publicly to the support of beleaguered director-general Mr John Birt.

The moves follow the intervention of Sir Tim Bell, the public relations guru who tried, unsuccessfully, to save Mr David Mellor from having to resign as national heritage secretary last year.

The arguments now being used, and endorsed by senior journalists such as Mr John Simpson, Mr Peter Jay, Ms Polly Toynbee and Mr Martyn Lewis in a letter in today's Times newspaper, is that Mr Birt has to be supported to save his programme of reform at the corporation.

Mr Birt, who joined the BBC staff only last week after revelations he had been a freelance consultant with his own private company for the six years he was deputy director-general, is committed to making the BBC more efficient.

There was growing speculation last night that attempts to save Mr Birt may be at the expense of Mr Marmaduke Hussey, the BBC chairman. The Daily Telegraph newspaper today quotes an influential BBC governor, Mr Keith Oates, managing director of Marks and Spencers, saying he made clear a month ago that he disapproved of Mr Birt's freelance status and tax arrangements.

It is noticeable that not a single governor has so far publicly endorsed the position of either Mr Birt or Mr Hussey. The issue will be discussed at a BBC board of governors meeting on Thursday.

Friends say that Mr Birt has been deeply shocked by the events of the past week but that with the support of Sir Tim, who has been a public relations adviser to the BBC for some years, he is determined to fight to keep his job.

Mr Will Wyatt, managing director of network television, yesterday admitted in a BBC radio interview that both Mr Birt and the corporation had been damaged by the revelation that Mr Birt he had been paid through a private company, John Birt Productions. But Mr Wyatt insisted that the director-general should not lose his job.

His comments followed calls by several Sunday newspapers for the resignation of Mr Birt, and of Mr Hussey.

Mr Hussey last week vigorously defended Mr Birt. It later emerged that several BBC governors had not given their support to his statement, and some had not known of Mr Birt's freelance status.

British Broadcasting Corp GB United Kingdom, EC P4833 Television Broadcasting Stations COMP Company News PEOP Personnel News Birt, J Director General British Broadcasting Corp P4833 The Financial Times London Page 6 442
Australian share prices open lower following Labor's election victory Publication 930315FT Processed by FT 930315 By REUTER SYDNEY

Australian share prices opened sharply lower today following Labor's election victory with the All Ordinaries index falling 25.9, or 1.56 per cent, to 1635.6, Reuter reports from Sydney. The market had risen 7 per cent during the election campaign largely on expectations of victory by the Liberal/National party coalition.

AU Australia P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 5 83
Storms paralyse airports in US Publication 930315FT Processed by FT 930315 By REUTER NEW YORK

BIG US airports along the east coast were closed for more than 24 hours by the brutal weekend storm, stranding thousands and creating a nightmare for national and international travel, Reuter reports from New York.

The New York area's three main airports - LaGuardia, John F Kennedy and Newark - closed for more than 24 hours on Saturday and yesterday after the worst winter storm of the century pounded the region with hurricane-force winds and up to three feet of snow.

Thousands of airline ticket holders, trapped at the airports because of cancelled flights, spent the night sleeping in plastic airport chairs and on carpeted floors.

'The staff was very co-operative, they brought blankets and pillows,' said one stranded passenger at Kennedy airport. 'But that floor has concrete underneath it.'

The Port Authority of New York and New Jersey, which operates the airports, said more than 3,400 people were stranded by the storm. 'It was not a good day to be a ticketholder for a flight out of New York City,' said spokeswoman Lynn Tierney.

The airports were expected to reopen late yesterday after thousands of connecting flights all over the country and the world were disrupted.

Boston's Logan Airport reopened early yesterday but in Washington, Dulles and National airports both remained closed. Philadelphia International Airport reopened early yesterday.

In Atlanta, Delta Air Lines said it resumed limited flights yesterday morning from the city's international airport after cancelling 1,000 flights nationwide on Saturday.

A spokesman for President Bill Clinton said assessment teams were already calculating the damage and would have a rough national figure in 24 to 48 hours.

Presidential spokesman George Stephanopoulos said Florida, hit by some 50 separate tornadoes, was the only state so far to request federal disaster assistance.

US United States of America P451 Air Transportation, Scheduled RES Natural resources TECH Services P451 The Financial Times London Page 3 327
World News in Brief: Record drugs haul Publication 930315FT Processed by FT 930315

Two men were being questioned after Dover customs officers seized their biggest haul of amphetamine sulphate tablets. The drugs had a street value of about Pounds 15m.

GB United Kingdom, EC P9229 Public Order and Safety, NEC PEOP Personnel News GOVT Legal issues P9229 The Financial Times London Page 1 62
Observer: On the record Publication 930315FT Processed by FT 930315

As the Whitehall equivalent of the Squidgy tapes, bootleg recordings of a boisterous Waltzing Matilda, doctored to include statistical references, are becoming a collector's item in officialdom.

When the song was rendered at a staff party organised by Bill McLennan, the Australian head of the Central Statistical Office who took over a year ago, he was so impressed that he insisted the choir put the number on record. As the official song includes references to Her Majesty's Treasury, Budget purdah forbids full disclosure.

But the chorus will give a flavour:

Testing the market, testing the market,

Who'll come a -testing the market with me?

And he sang as we sighed and we waited to be Ozzified,

Who'll come a-testing the market with me?

AU Australia P9611 Administration of General Economic Programs CMMT Comment & Analysis P9611 The Financial Times London Page 13 151
Observer: Honest broker Publication 930315FT Processed by FT 930315

Whether or not anyone knows quite what's what in the arcane sector of finance known as 'derivatives', we now have a Who's Who therein - thanks to a joint effort by Risk magazine and Intercapital Brokers.

What's more, by asking the sector's inhabitants about their 'lifestyle' in the questionnaire, the publishers attempted to make all the so-called rocket scientists with multiple degrees in nuclear physics sound a shade more human.

'They are a cosmopolitan bunch, moving at ease between jobs in Tokyo, New York, London, Paris . . .' oozes the accompanying blurb. But apparently somewhat literal minded with it, a note at the front of the volume suggests.

Having asked the whizz kids taking part in the early stages to name their 'pet hate', the compilers were dismayed by replies expressing a 'high level of distaste' for domestic animals. So the questionnaire was later amended to ask: 'What do you most dislike?'

Alas we're not told whether the derivatives specialist who answered 'my wife', was an early or a late participant.

GB United Kingdom, EC P2731 Book Publishing TECH Products CMMT Comment & Analysis P2731 The Financial Times London Page 13 200
Observer: Power play Publication 930315FT Processed by FT 930315

Can the epic saga of the Dollars 25bn buy-out of RJR Nabisco work as television comedy? While the critics must make up their own minds, certainly plenty of laughs came from the elite Manhattans at the private preview of a new Home Box Office television movie.

Called Barbarians at the Gate, it is based on the best-selling tale of Henry Kravis, Ross Johnson and the battle for RJR Nabisco. Indeed, the preliminary reception was graced by one of the book's co-authors, Bryan Burrough, who left The Wall Street Journal recently for a highly paid perch at Vanity Fair. But he ducked out of the show as soon as the lights went down.

Of the subsequent cackles, the most hysterical outburst was a true sign of changing times on Wall Street. It came when the story moved to the home of Jim and Linda Robinson, the former power couple from American Express. As their telephone rang, a trimly dressed maid interrupted her task of ironing dollar bills, and answered the call with: 'Robinson residence'.

The 1980s must really be over.

RJR Nabisco US United States of America P7812 Motion Picture and Video Production TECH Products CMMT Comment & Analysis P7812 The Financial Times London Page 13 214
Observer: Fall out Publication 930315FT Processed by FT 930315

Whatever may befall John Birt's director-generalship of the BBC, wax effigies of him transfixed with pins may soon be found in the hands of Britain's self-employed.

Thanks to the furore over his arm's-length contractual arrangements with the BBC while on his way through the deputy dg's job to the pole position, it seems the chancellor of the exchequer might foreshadow a change of the rules for the self-employed in tomorrow's Budget.

Gurus at the Institute of Taxation, the UK's professional body concerned with said topic, believe Norman Lamont may begin introducing self-assessment for the self-employed - on the lines of the pay and file system used for corporation tax.

But mercifully, since it's proving difficult to devise a workable way of saddling them with a brand new system of current-year taxation instead of allowing them to earn now and pay later, the project is expected to take a while to perfect. Perhaps another three years, the gurus say.

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy GOVT Taxes CMMT Comment & Analysis P9311 The Financial Times London Page 13 189
Observer: Exchanging bosses Publication 930315FT Processed by FT 930315

Not sure what it tells, but turnover in stock exchange bosses is starting to pick up again. Only a day after Peter Rawlins stepped down as chief executive of the London Stock Exchange last week, Rudiger von Rosen, chief executive of the Deutsche Borse, announced he was quitting. Perhaps the leaders of the New York Stock Exchange and the Paris Bourse ought to inspect their employment contracts to see what they say about security of employment.

The irony is that, while Rawlins left under a cloud, von Rosen leaves after a record of considerable achievement. He joined the Frankfurt stock exchange in 1986 from the Bundesbank where he had been head of communications for Karl Otto Pohl, then president of the German central bank.

By most accounts, he did a good job persuading Germany's eight regional bourses to bury their age-old rivalries in the interests of creating a nationwide Deutsche Borse at the beginning of the year. But now he is being replaced by a former Swiss management consultant, Werner Seifert, 44, who is five years younger and works for Swiss Re in Zurich. He is said to be an ally of Deutsche Bank's securities chief, Rolf Breuer, who also doubles up as chairman of the Deutsche Borse.

If von Rosen had a fault it seems to have been his independent streak of mind, which has irritated the big German banks. Only last week he said that his ambition was to see Frankfurt dislodging London as Europe's leading stock exchange, citing its technological edge. Breuer has the same objective but feels happier about having a less controversial figure in place. Perhaps London should follow suit when it comes to picking its next stock exchange chieftain?

Deutsche Borse DE Germany, EC P6231 Security and Commodity Exchanges CMMT Comment & Analysis PEOP Appointments P6231 The Financial Times London Page 13 317
Leading Article: Mr Keating's party trick Publication 930315FT Processed by FT 930315

WHEN THE time came, Mr Paul Keating said, he would flick the switch to vaudeville. And so he did. The Australian prime minister's victory in Saturday's election is a triumph for his political skills and street-brawler instincts. When he ousted Mr Bob Hawke in December 1991, the best hope of the Labor party was that he would limit the extent of an apparently inevitable defeat. Instead, he won by making the opposition's modest tax reform plan, which was similar to one he himself had once advocated, appear to be a fundamental attack on egalitarian Australia's way of life.

The conservatives become the latest opposition to rue tax proposals that could be portrayed as increases likely to hit the broad electorate. In fact, the general sales tax proposed by Mr John Hewson, the opposition leader, would have been accompanied by abolition and reduction of other taxes. Food prices might have fallen. But Mr Keating pressed every button guaranteed to win votes: the GST would cause a blanket 15 per cent rise in prices of everyday goods; it would benefit the rich at the expense of the poor; it provoked Canadians into ejecting prime minister Brian Mulroney (at best, only partly true).

That Labor should win a fifth consecutive term is the more remarkable given that voting is compulsory and more than 1m of a population of 18m are unemployed. Mr Hawke and Mr Keating, federal treasurer for eight years, cannot carry all the blame for the recession from which Australia is emerging. Financial deregulation in the 1980s brought an explosion in financial assets and entrepreneurs' excesses.

Biggest problem

As a result, Australia's recession began earlier than those in the rest of the industrialised world. But, overall, Labor's policies of opening up the economy - reducing tariffs, floating the currency, deregulating markets, freeing labour markets, and shifting the attention towards Asia - were what Australia needed.

The biggest problem for Labor was that, like the Republicans in the US and the Conservatives in Britain, the party ran out of new ideas. Mr Keating's campaign provided little evidence that he has yet hit upon any. However, the fact that he has now definitively established his party leadership may allow him to force new blood into government.

After the pain of the recession, the new administration inherits a fundamentally favourable situation, with the economy growing moderately, inflation squeezed virtually to zero and rising demand generating higher productivity. Its challenge - one in which Australia is scarcely unique - is that the economy's projected growth, even after promised fiscal stimulus and a likely further easing of monetary policy, is unlikely to be fast enough to reduce unemployment.

Basic approach

This is not easy for any government to correct. However, a renewal of Labor's basic approach of the 1980s would help the economy to grow along lines likely to lead in the end to faster job creation. Labour reform has slowed: exporters would be more competitive if labour market rigidities in the docks and in domestic freight services were addressed. Tariff cuts need to be implemented with greater determination, to help make the automobile, textile and sugar industries more competitive. That would help redirect investment capital into areas, such as computer software development, where Australian industry is showing promising signs. Remaining curbs on financial markets should be lifted.

The irony is that, while the ruthless campaign has narrowed his options, tax reform should nevertheless be on Mr Keating's agenda. The current structure is biased against exports and savings, both of which Australia, with its heavy foreign debt burden, needs urgently to increase.

Mr Keating has made it clear that he sees Australia's future in Asia. Given the extraordinary dynamism of the region, this is a sensible attitude which he should develop further, even though its aim is partly a defence against European and American trade blocs. If he is to hold office with as much skill as he showed in winning it, however, he has to demonstrate that he has a freshness of vision across other areas of policy as well.

AU Australia P9111 Executive Offices P9611 Administration of General Economic Programs CMMT Comment & Analysis P9111 P9611 The Financial Times London Page 13 709
Leading Article: Chancellor's opportunity Publication 930315FT Processed by FT 930315

THE BUDGET that will be delivered by Norman Lamont will be historic, regardless of its content. It is to be the first of two due this year and the last in which decisions on public spending are to be separate from those on revenue. The question is whether what it contains will be worthy of the stature historians are bound to accord it. The chancellor does, in fact, enjoy a great opportunity, something that few may now believe after a recession that has lasted two and a half years. Yet a chapter of accidents has given the UK an excellent chance for sustained non-inflationary, export-led growth.

What has created this opportunity? First, an ERM-induced monetary policy tighter than any the UK is likely to have sustained on its own has pushed UK underlying inflation - including its most important determinant, pay inflation - towards levels not seen for a generation. Second, an abrupt, unwanted, but fortuitous exit from the ERM has left sterling at a competitive level. Third, the rapid deterioration in the performance of the continental economies should lead to lower interest rates and so allow the UK to sustain an aggressive monetary policy, without serious risk to the exchange rate. Finally, the debt overhang has ended the damaging conflict of the 1980s between the interest rates needed for domestic monetary control and those allowing a tolerably competitive exchange rate.

Different views

How should the government exploit its opportunity? One thing it should not do, as probably it knew all along, is pay too much attention to its panel of seven wise men. It is not just that they have radically different views of how the economy works. It is rather that from past experience their recommendations are most likely to be wrong where there is the greatest agreement. In this case, the most likely mistake is the consensus of six out of the seven that tax increases, even if needed, should be postponed.

The fundamental question is whether the UK possesses a large structural fiscal deficit. The chances are that it has one of 5 per cent of gross domestic product or more. If so, either tax increases or radical curbs on spending will be required to prevent an ultimately explosive increase in public debt. Such an explosion is not merely a threat for the distant future. The fear that it could happen is also likely to limit what could be the most valuable single development of the next several years, namely, a sustained reduction in the nominal interest rate on long-term bonds.

Nascent recovery

The good reason for postponing tax increases is fear of what they might do to the nascent recovery. That may be a reason for delaying introduction of tax increases until 1994-95, but the intention to make those adjustments needs to be announced now, which may itself rob the postponement of its benefits. The case for postponement has, in any case, been weakened by exit from the ERM, which allows any adverse effects of tax increases, almost certainly exaggerated by unreconstructed Keynesians, to be offset by a sufficiently aggressive monetary policy.

The job of the chancellor is to convince the markets that tax increases or spending cuts equivalent to a fiscal adjustment of at least 3 per cent of GDP will be introduced over at most the next two years. It is also to introduce changes in the tax system that would reduce its distorting effects on the economy. It would be wonderful if the chancellor managed to combine the needed credible commitment to fiscal rebalancing with imaginative tax reform. But it may be too much to ask for.

One member of the Treasury's panel of forecasters has argued that an outcome of less than 1 per cent growth this year would be a 'disaster'. This exaggeration does much to explain the persistent instability of British macroeconomic policy, which has, in turn, done so much damage to the British economy. What would, indeed, be a disaster is for the present opportunity for sustained growth to be frittered away in yet another unsustainable expansion, followed by a deeply damaging recession later in the 1990s. Even the UK should be able to learn from past failures. The time to show it has done so is now.

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy CMMT Comment & Analysis P9311 The Financial Times London Page 13 740
The deal they were condemned to do: The state of the German economy helped drive the politicians to agree a solidarity pact Publication 930315FT Processed by FT 930315 By QUENTIN PEEL

Delight, relief and exhaustion were apparent in almost equal proportions on the faces of Chancellor Helmut Kohl and Mr Bjorn Engholm, the German opposition leader, on Saturday night.

After two and a half days of almost unrelieved negotiations over the fine details of the long-awaited solidarity pact to finance German unification, a deal on the central component - public finances and burden-sharing - had been done.

When it comes to analysing the figures, the holes in the pact are certain to emerge. But at 8pm in the chancellor's office in Bonn, where they had been shut away so long from a gloriously sunny, premature spring weekend, nobody was picking holes. It was time for mutual congratulation.

The entire German top political establishment - the chancellor and his principal ministers, the leading figures in all the main parliamentary parties, and the 16 prime ministers of the German federal states - had thrashed out a political agreement on the soaring cost of subsidising east Germany for the foreseeable future. They had agreed on how to split the cost between the central government and the wealthy western states. And they had done it at a time when the overwhelming majority of observers doubted their ability to do so, and had even begun to question their very powers of leadership.

Mr Kohl, that master of the understatement, called it 'a good result' and 'a very considerable achievement'. Everybody had had to compromise, he said, and all had been willing to do so.

Mr Engholm, leader of the opposition Social Democrats (SPD), who had put his own political credibility at stake in the exercise of reaching cross-party agreement, went further. 'We have taken a huge stride towards the realisation of German unity,' he said. 'That was the aim, and that is the result. Seldom before have I found two and a half days so useful and so fruitful.'

As for the prime ministers of the German Lander, whose budgets face a critical squeeze from unification in the coming years, they were also overwhelmingly positive.

Mr Kurt Biedenkopf, the Christian Democrat prime minister of Saxony, the industrial heartland of east Germany, called the deal 'a success for the federal Germany, and a success for a united Germany.

'Many doubted whether it was possible for 16 Lander to agree with the federal government on such a complex deal,' he said. 'We have succeeded in cutting the Gordian knot and in reaching a tolerable conclusion.'

Mr Rudolf Scharping, the SPD premier of the Rhineland Palatinate in the west, said it was above all 'a success for the major parties and perhaps a signal that the endless to-ing and fro-ing is at an end'.

The deal they have done is certainly less than ideal. The aim of the package was to squeeze western Germany - both the central government and the states - in order to finance a transfer to the eastern states in 1995 of DM110bn (Pounds 46.6bn), including DM40bn for servicing the accumulated debts of the east. That has to be done while the western economy is in recession, after a sharp downturn in the last quarter.

Mr Kohl and Mr Theo Waigel, his finance minister, wanted to cut western spending, including the bloated social security budgets; to postpone any tax rise until 1995, to allow the economy time to recover (and the 1994 elections to take place); and to keep any call on the capital markets to a minimum, to encourage the German Bundesbank to carry on cutting interest rates.

Mr Engholm and the SPD wanted no cuts in social spending and a much earlier tax rise to meet the immediate spending gap.

In the event, the deal will raise taxes from January 1995 by a painful 7.5 per cent surcharge on income tax, and an increase in the wealth tax: the amount is about double what Mr Waigel had intended, but at least it will not come into effect until 1995.

He has agreed to give the Lander nearly DM20bn in extra tax revenues, to help them pay for transfers to east Germany, by raising their share of value added tax receipts from 37 to 44 per cent. That will relieve them of what they all regarded as quite unbearable pressure on their spending plans.

Public sector borrowing will rise significantly, thanks to an increase in the borrowing limit of the Treuhand privatisation agency by DM30bn, to allow it to finance further restructuring of 'core industries' which it cannot sell, and to clean up the ecological havoc they have caused. At the same time the Bank for Reconstruction will be allowed to raise its borrowing limit from DM30bn to DM60bn to finance housing modernisation in the east.

As for savings measures, Mr Engholm won an absolute commitment that there would be no cuts in social spending. So the two sides simply agreed on a figure for savings - DM9.2bn at the central government level - and instructed the finance ministers to identify the necessary cuts. However, if they fail to meet the target, the Lander will have to forfeit the corresponding amount from their VAT revenue: that is Mr Waigel's secret weapon.

It all seems to fall well short of what the Bundesbank was looking for: a clear commitment to budget cuts, and no increase in the overall public sector indebtedness. Last night, the Bundesbank was studiously, if somewhat sceptically, refusing to comment on the deal.

Yet it would be wrong to underrate the importance of the deal, for it is, above all, a political as opposed to purely financial agreement. 'This is a vital step in bringing unification into our consciousness,' Mr Biedenkopf said yesterday.

It will also provide certainty and reassurance for the private sector, at a moment when the investment climate is gloomy, Mr Scharping said. 'That is of decisive importance for the Bundesbank.'

The state of the German economy was decisive in driving the negotiators towards a deal, and in reinforcing the government's resistance to any tax rise before 1995, but equally in weakening the government's insistence on firm spending cuts to be agreed before they went home.

The key to the deal was the tax trade-off, reached by Mr Waigel and the main body of state premiers in a working group on Friday night. That is where the deal between a higher VAT take for the Lander, against a higher solidarity surcharge for the central government, was done.

The other key was the question of social spending cuts. Everyone agreed they would try to find savings of up to DM3bn from clamping down on social-security swindles. Mr Kohl wanted the savings to be identified by May - and, if not, the original cuts to be reinstated. Mr Engholm flatly refused. Mr Kohl got the tax deal, Mr Engholm the social spending.

In spite of the overwhelmingly sceptical view of the German media that the pact would never come to pass, most of those involved always said they were 'condemned to agree'.

Mr Engholm, in particular, was clear that he wanted an agreement and would get one. He, like Mr Kohl, is instinctively a man of consensus and compromise. That is why both are accused of failing to give clear leadership. When they left Saturday night's closing press conference, Mr Kohl took Mr Eng-holm's arm and squeezed it, a gesture which said more about their temporary alliance than any words.

There is no doubt that the local election results from the state of Hesse, just six days before, concentrated minds powerfully. Mr Kohl's Christian Democrats did badly - losing 2.3 per cent on a previous bad score. Mr Engholm's SPD did even worse, losing 8.4 per cent of its share of the vote. Both men were reinforced in their determination to show they could do business in Bonn - not simply shout slogans at each other.

The question now is how the pact, in all its inevitable pain, will be sold to the nation, and whether the lower ranks in the leading parties will still try to pull it apart. That is precisely where the leadership powers of both Mr Kohl and Mr Eng-holm will be challenged.

DE Germany, EC P9311 Finance, Taxation, and Monetary Policy P9611 Administration of General Economic Programs P9532 Urban and Community Development GOVT Government spending P9311 P9611 P9532 The Financial Times London Page 13 1418
Personal View: Myth of America's decline Publication 930315FT Processed by FT 930315 By MICHAEL J BOSKIN

The notion that the American economy is in a long-run structural decline has been advanced over the last decade by academic and media pundits. These pundits clamour for expanded government spending programmes, protectionist trade policies and government subsidies for special commercial technologies. In Europe and Japan pundits gleefully proclaim that the US has been eclipsed, and that the next century 'belongs' to Asia or to Europe.

The declinists insist that America is lagging behind its economic competitors (especially Japan and Germany), is de-industrialising, and that economic collapse is just around the corner. In a revisionist history, the declinists - some now occupy high positions in the Clinton administration - blame the 'decline' on the 'failed policies of the 1980s'. The declinists' allegations form the premise for President Clinton's economic programme.

The American economy does, indeed, face serious challenges, most importantly raising productivity growth, but even with a healthy discount for political hyperbole, these allegations are nonsense.

The US remains the world's largest, richest and most productive economy. With less than 5 per cent of the world's population, it produces about a quarter of the world's total output of goods and services. The average standard of living - measured by the total value of output per person - exceeds that of any other leading industrialised country, being 20-30 per cent higher than in Germany and Japan. Productivity is also higher, as is average private sector pay, than in these other nations.

The fortunes of particular industries have ebbed and flowed, but America is not de-industrialising. Neither is it losing its overall competitive edge. The US is the world's leading exporter and, although many US manufacturers face stiff competition in markets with high volume and low profit margins, America has maintained or enhanced its technological edge in areas such as microprocessors, advanced telecommunications, biotechnology, aerospace, chemicals and pharmaceuticals.

The American economy is currently faring far better than those of the other leading industrialised countries. The US is producing about 3 per cent more industrial output than a year ago, while Germany, France and Italy are producing 4 per cent less, and Japan 8 per cent less.

What happened in the 1980s? The longest peacetime economic expansion in the nation's history, from late 1982 to mid-1990, followed a successful, but costly, taming of the 1970s double-digit inflation, as 20m new jobs and millions of new businesses were created. Real GDP grew 30 per cent. Productivity rebounded slightly, real wages continued to grow slowly, and the wage premium for educated workers increased, but less-educated young workers faced bleaker prospects. Persistently large budget deficits developed, as federal spending grew relative to GDP, while revenues were stabilised by cutting tax rates and indexing for inflation. The national debt rose by Dollars 2 trillion, but private wealth increased five times as much.

In short, it was a decade of generally successful economic performance, although serious problems remained and new ones emerged.

I agree with the pundits of decline on one point: America will not remain the world's strongest economy unless productivity growth improves substantially.

America saves and invests too little. Its federal government spends and borrows too much. Its education system is woefully in need of reform. Its tax system has become less conducive to entrepreneurship, saving and investment. The government regulates too much private activity. The legal system imposes unnecessary costs on consumers and companies, and stifles innovation. Too many Americans depend on a welfare system that penalises work, saving and intact families.

An aggressive reform agenda focused on these issues, as well as a successful conclusion of the Uruguay Round of the Gatt, is America's best bet for achieving sufficiently rising standards of living to provide a better legacy of prosperity to its children, and opportunity to the disadvantaged.

The new administration seems intent on addressing these problems with new government programmes, higher tax rates, increased and less flexible regulation, and trade protection - rather than through reforms that empower individuals and families, and strengthen the market system. If implemented, such a programme, inspired by the declinists, eventually might become a self-fulfilling prophecy.

The author is visiting scholar, American Enterprise Institute, and former chairman, President's Council of Economic Advisers

US United States of America P9611 Administration of General Economic Programs CMMT Comment & Analysis P9611 The Financial Times London Page 13 731
Vision of peace starts to flicker: Mideast peace talks have stalled since Yitzhak Rabin's election in June Publication 930315FT Processed by FT 930315 By HUGH CARNEGY

When Yitzhak Rabin meets President Bill Clinton in Washington today, he will present the US leader with a symbolic - if unoriginal - statuette of the dove of peace.

Though Mr Clinton may be charmed by its elegance, many people in the Middle East may wonder whether it is an appropriate gift from a man whose commitment to push for peace in the region has been called into question since he was elected prime minister of Israel last June.

Such were the hopes and expectations that accompanied Mr Rabin's triumph over the long-dominant Likud party and its obdurate leader, Mr Yitzhak Shamir, that it was not uncommon to hear the new premier compared as an agent of change with President F W de Klerk of South Africa. Mr Rabin himself spoke of reaching within nine months a critical first-stage agreement with the Palestinians on the keystone issue of the occupied West Bank and Gaza Strip.

Now those nine months have almost passed and such a breakthrough does not seem much closer. Instead, Mr Rabin and Mr Clinton will discuss how to salvage the process of peace negotiations between Israel and its Arab neighbours begun under Mr Shamir, but which has faltered since last December.

Over the past three months, the talks have been derailed by Mr Rabin's decision in mid-December to expel summarily more than 400 Palestinians to Lebanon following a spate of killings of Israeli soldiers by Moslem fundamentalists. The shock that the unprecedented expulsions caused has been compounded by a spiral of violence in the occupied territories that has pushed casualty tolls back towards the levels of the early days of the intifada, the five-year-old Palestinian uprising against Israeli rule. So far the Palestinians have refused an invitation by the US and Russia, co-sponsors of the peace process, to reopen negotiations next month.

The Palestinians - some of whom had imagined that Mr Rabin might do for the West Bank and Gaza what French President Charles de Gaulle did for Algeria - express exasperation. 'Rabin is simply not ready to make peace,' says a senior West Bank leader. Instead of de Gaulle - or de Klerk - they see an old military foe who led such bitter campaigns against them as the mass expulsions of Arabs from the towns of Lydda and Ramle during the 1948 Arab-Israeli war and the crushing defeat of the 1967 six-day war.

But is the irascible Mr Rabin really little more than a tough ex-general who lacks the vital extra dimension of peacemaker? Certainly, he never could be described as a dove. In his own Labour party, he has long been the leader of its hawkish faction, scorning colleagues who would negotiate openly with the Palestine Liberation Organisation and accept, ultimately, Palestinian statehood in the West Bank and Gaza.

He will never, say his aides, negotiate directly with what he calls 'the Tunis gang' - the Tunis-based PLO leadership of Mr Yasser Arafat - which most Arabs argue is as vital to the peace process in the Middle East as is the African National Congress to negotiated change in South Africa.

But this is by no means the full story. Mr Rabin is prepared, in line with Labour policy, to cede 'land for peace' - that is, to return to Arab rule large portions of the West Bank and Gaza. He offers no shift on Israel's determination to maintain control over all of Jerusalem and its environs and he sees Palestinian sovereignty as being expressed through a union of sorts with Jordan, not independence. But he has made no bones about his belief that Israel can achieve peace only through making territorial compromises.

Most strikingly, Mr Rabin has repeatedly said he is willing to sanction a significant Israeli withdrawal from the Golan Heights as the price for peace with Syria, Israel's most threatening neighbour. Since the election, he has been encouraged by what he sees as positive signals from President Hafez al-Assad in Damascus - and discouraged by the lack of progress on the West Bank and Gaza. As a result, he has reversed his earlier strategy of dealing first with the Palestinians before negotiating seriously with Syria.

Moreover, this apparent willingness to make concessions reflects Mr Rabin's sense that he is playing a historical role. He had a prominent part as a young commander in Israel's fight for independence in 1948; he was chief of staff when the West Bank, east Jerusalem, Gaza and the Golan were captured in 1967. Now, at 71, he wants to be the leader who achieves a broad-fronted peace. 'It is his last chance and he doesn't want to lose the chance,' says a close associate.

However, while de Gaulle and de Klerk took decisive paths, Mr Rabin is hesitant over how to proceed. This stems in part from his fear of the opposition he might face from Israel's volatile and often violent right wing. At the same time, he seems to lack conviction about how far he should go.

Mr Rabin's tightly knit circle of officials and advisers now says that Labour's election victory - which enabled it to form a coalition with the left-liberal group Meretz and the Shas religious party - did not constitute a mandate for a sharp change in policy. One called it 'an accident' in which concerns over the economy, corruption within the Likud and the swing vote of Russian immigrants delivered the shift from the Likud's unyielding 'greater Israel' stance to the 'land for peace' policy of Labour and Meretz.

'Rabin knows it better than anyone - that Israel still thinks Likud,' said the same official. The argument is that, in the absence of a dramatic event such as a summit between Mr Rabin and President Assad, public opinion will take time and careful education to change.

A move has been made - mainly through speeches and interviews by Mr Rabin - to plant the idea among Israelis that important concessions will be needed on the Golan and, eventually, in the West Bank and Gaza as well. But the limits have not been defined, nor the time-scale set out.

Mr Rabin has said that the opportunity for a breakthrough in the peace talks will not last long. He fears that Islamic fundamentalism and a resurgent Iran may pull regional developments in a more menacing direction for Israel if agreements are not reached soon - perhaps by the end of this year. The Israeli public, too, may have limited patience if he cannot fulfil his election promises of peace. What seems to be missing is a clear vision of what has to be done to achieve it, and a willingness to carry it through.

'Peace does not mean paradise, but if there is no peace there will be hell and Rabin is aware of that,' says Professor Yehoshafat Harkabi, an expert on the Arab-Israeli conflict and intelligence adviser to Mr Rabin.

'The problem is what price he is willing to pay for peace. I am suspicious that he himself is not sure how far he is prepared to go.'

IL Israel, Middle East P9111 Executive Offices P9721 International Affairs PEOP Personnel News Rabin, Y Prime Minister Israel P9111 P9721 The Financial Times London Page 12 1230
Letter: 'Wise man' letter a serious contribution to public debate Publication 930315FT Processed by FT 930315 From Professor TIM CONGDON

Sir, I was surprised by your economics correspondent's account of my open letter to the Treasury Panel (' 'Wise man' attacks wisdom of fellow economists', March 6). I would not dream of embarking on public criticism of my fellow panellists' intellectual capabilities, for which I have in any case a high regard. The point of my letter was to suggest their professional interests have been misdirected. In particular, I believe they have been mistaken in failing to integrate money and banking into their analysis and forecasting of Britain's economy.

Your readers may be interested to know that I proposed during the panel's discussions that a section on 'monetary developments' be included in the report. I received no support for this proposal from any of the other panellists.

I regard the future behaviour of the British economy as strongly influenced by the rate of (broad) money growth. Specifically, if broad money growth between now and end-1994 is 30 per cent I would expect the level of economic activity and prices in 1995 to be very different than if it were 5 per cent. But one member of the panel - Mr Gavyn Davies of Goldman Sachs - said explicitly in his submission that he was sceptical that faster monetary growth (due, say, to a change in funding policy) would have any significant impact on the economy. As far as I can tell, none of the panel thought that changes in the rate of monetary growth could cause subsequent changes in economic activity.

I am, of course, open to correction and would like to think that I have misunderstood my fellow panellists' views on this matter. May I suggest two questions for them to clarify their views? They might perhaps answer in your columns.

Is the equivalence of the demand for and supply of money balances an important aspect of macroeconomic equilibrium? If so, what definition of the quantity of money is relevant to the determination of that equilibrium?

I would also like to express surprise at the various comments on my open letter made by some of the panellists. These included references to 'immoderation', 'excitability', 'unhelpfulness', even 'craziness' and the possibility of libel proceedings. As a matter of fact, none of the panellists had been sent the letter when they ventured these remarks, as it was still at the printers or in the post over the weekend in question. I intended the letter to be a serious contribution to a public debate which is of vital importance to the future of our country. I had hoped it would be taken in this spirit.

Tim Congdon,

Lombard Street Research,

33 Lombard Street,

London EC3

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy P8733 Noncommercial Research Organizations CMMT Comment & Analysis PEOP Personnel News P9311 P8733 The Financial Times London Page 12 490
Letter: Recognition for role of engineering Publication 930315FT Processed by FT 930315 From JOHN C WILLIAMS

Sir, The 'Personal View' of Dr Pendlebury and Mr Shipley (March 3) should be read by all who want to stem the recent tide of decline in manufacturing in the UK. The task may not be as difficult as might be imagined.

Recognition that an engineering career is vital to the wealth creation process is recognised in France and Germany, where a university engineering course is prized by students and encouraged by parents. In Singapore, an early education incorporating experience and practice in engineering is understood to be an excellent entry into senior positions in government, commerce and business. Surely it should not be difficult to appreciate that this hands-on experience is more relevant to national success than an Oxbridge 'greats' degree.

The mood of change could be rapid as evidenced by the prime minister's reported comments on the importance of manufacturing ('Major urges companies to be aggressive', March 4). However, it is also vital that the industrial leaders in manufacturing recognise this change and promote the training and recognition of all engineers.

I would thus only add to the Personal View the comment that chartered engineers have a prime responsibility to ensure that the support role of incorporated engineers and engineering technicians is championed as well.

John C Williams,

secretary & chief executive,

Institution of Electrical

Engineers,

Savoy Place,

London WC2R 0BL

GB United Kingdom, EC P8711 Engineering Services CMMT Comment & Analysis P8711 The Financial Times London Page 12 256
Letter: Settlement crucial to protecting profit Publication 930315FT Processed by FT 930315 From Mr LAURENCE D PORTER

Sir, I fully concur with your leader ('Taurus done to death', March 12). However, I contend that it contains a flawed argument in respect of settlement. The success of the Stock Exchange's Seaq International dealing service has not been achieved despite the shortcomings of settlement in London, as in almost all cases settlement of these transactions takes place in the domestic location of the particular stock, ie Paris for French stocks, Frankfurt for German stocks.

As a settlements manager with more than 20 years' experience in the City I also venture to suggest that if one was to ask the principals of any leading securities house or investment bank whether or not settlements were crucial, the answer in the 1990s would be a resounding yes. Increasing competition and ever-decreasing margins on front-end profitability mean that accurate, prompt and efficient settlement of transactions is the only way of protecting a firm's hard-earned profit.

Laurence D Porter,

Saxons,

Cranmer Road,

Riverhead,

Sevenoaks, Kent TN13 2AT

GB United Kingdom, EC P6231 Security and Commodity Exchanges CMMT Comment & Analysis TECH Standards P6231 The Financial Times London Page 12 201
Letter: Labour not cynical in pressing its Maastricht amendment Publication 930315FT Processed by FT 930315 From Dr JACK CUNNINGHAM

Sir, You seem either unable or unwilling to understand why Labour moved and voted for the successful amendment on the Committee of the Regions ('Major must persevere', March 10).

The import of the sanctimonious message in your leading article is that we should 'rubber stamp' a government bill to which we always have had fundamental objections. How can you legitimately describe as cynical an opposition party which expresses its view clearly, moves an amendment to legislation, and states its intention to vote for it?

Our aim was to ensure that our delegation to the committee is truly representative of the nations and regions of the UK when dealing with the institutions of the European Community. Our argument that elected representatives from local government should make up the 24 members was accepted by the Commons on March 8.

As you rightly say it is Mr Major's own rebels who are filibustering on the Maastricht legislation. They have not been bought off by the Tory leader's opt-out on the Social Chapter - the first of many miscalculations by the prime minister over Maastricht. You fail to mention it was Mr Major who, in a state of panic last November, promised to delay third reading of the bill until the second Danish referendum.

Your charge of cynicism would be more appropriate to a prime minister who promised delay and now complains of opposition amendments.

To say the 'government's tactics have been less than brilliant' is a laughable understatement of reality. But serious government misjudgments are no reason for an opposition to refrain from pressing its own ideas in the House of Commons.

Jack Cunningham,

House of Commons,

London SW1A 0AA

GB United Kingdom, EC P8651 Political Organizations CMMT Comment & Analysis P8651 The Financial Times London Page 12 313
Taken out of service: How BR's privatisation will affect its pension plans Publication 930315FT Processed by FT 930315 By JOHN PLENDER

The politics of privatising British Rail are fraught enough as it is. But the implications for British Rail pensioners are turning out to be almost as big an irritant for ministers and officials as the restructuring of the rail system. Controversial proposals advanced by the government in January have prompted a host of anxious retired rail folk to make full use of a commodity with which they are richly endowed - time - to deluge the Department of Transport with letters and phone calls. The result is that a chastened government is preparing to beat a rapid retreat in the face of pensioner power.

The government's problem is that the railways are being privatised piecemeal. A single employer will be replaced by several employers ranging from the manager of the track-owning company, Railtrack, to the holders of franchises to run passenger services. With more than 200,000 pensioners and deferred pensioners in the British Rail pension schemes, far outnumbering existing employees, it would be difficult to allocate pensioners to the successor companies after privatisation.

Existing BR employees have been promised pension benefits in a joint industry scheme that will be no less favourable than the present arrangements. This looks reasonable enough, although it remains to be seen whether other rights such as representation on trustee boards turn out to be comparable. But the deal offered to pensioners is more controversial.

The government has offered two options. The first involves putting money into a closed scheme, where pensioners would be dependent for security on future investment performance. There would be no government undertaking to provide a continuing guarantee of either the fund's solvency or the index-linking of benefits.

The second option would, in effect, involve the nationalisation of the pensioners' money. The government would agree to pay the same benefits promised in the existing rules, rising in line with the retail price index. Further improvements in pension benefits would be ruled out. Because the government would be taking on a commitment to pay pensions in exchange for acquiring the scheme's assets, the Treasury would then have to dispose of Pounds 8.5bn of mainly equity-type investments. This would be helpful in funding a soaring public-sector borrowing requirement since it would take pressure off the gilt market. But once the marketable equities had been sold, it would leave a headache for the hapless officials required to manage a rump of less liquid investments, ranging from great tracts of Aberdeenshire to office blocks in the capital.

Neither of the two options is very palatable for the pensioners, most of whom receive very modest weekly sums from their fund. In a closed fund with no new cash flow, trustees would be obliged to run a low-risk, low-return investment policy. That is dismal news, especially for older beneficiaries on low pensions, for whom recent high investment returns have been a boon. Not only would their hopes of any uplift in benefits in future be dashed; they would also lose the security they enjoy in the present scheme. Under option two, they would enjoy full, inflation-proof security, but no uplift in benefits arising from good investment performance.

On the face of it, the pensioners would be short-changed, since at present most of them enjoy both index-linking and the fruits of good investment performance. The government has nonetheless argued that the index-linking in the main BR scheme is not cast-iron. A clause in the trust deeds allows BR to wind up and distribute the funds if they fall into deficit. Yet the circumstances in which this would happen are almost impossible to conceive.

The BR schemes are not like private-sector pension funds in which the employer guarantees to meet the balance of the cost of pensions after employees have made a fixed contribution. BR and the employees share an agreed proportion of the cost of meeting the level of benefits specified in the rules. As long as BR's continuing monopoly was not in question, contributions could have been adjusted on actuarial advice to ensure that deficits were only transitory. So the winding-up clause was academic and the index-linking secure.

Officials now privately concede that the two options proposed in January are dead in their existing form. The question is whether they can be turned into something more promising. On the index-linked formula, some consideration has been given to offering an alternative to the RPI. But a link to earnings would be politically difficult after the state scheme's move from earnings-related pensions to the less costly RPI. And a notional link to the performance of the joint industry fund would raise questions about how the government would provide security for pensions.

An alternative approach now being actively pursued is to find a way of putting the pensioners into the joint industry fund alongside members still in employment. But to do this, the actuaries would have to overcome an uncomfortable demographic fact: 40 per cent of the members who are still in employment would be supporting 60 per cent who are existing and deferred pensioners. The Inland Revenue would also have to be satisfied that there were no cross-subsidies between the various employers before granting its approval. And the government would probably have to offer some kind of security guarantee. This it would be reluctant to do without retaining a right to interfere in order to protect the taxpayers' interests.

At this stage it looks like an intellectual and political minefield. But ministers still have one possible card up their sleeves. An actuarial valuation of the fund is due on April 1 and the results will be known by autumn. They are expected to show a much diminished surplus. If that causes militant pensioners to conclude that, even without privatisation, uplifts in benefits in the existing fund would have been much rarer in the 1990s than in the 1980s, they could be more open to the government's ideas when they emerge. But at this stage all that is certain is that the saga will run and run.

British Rail British Rail Pension Fund GB United Kingdom, EC P4011 Railroads, Line-Haul Operating P6371 Pension, Health, and Welfare Funds P9621 Regulation, Administration of Transportation COMP Company News P4011 P6371 P9621 The Financial Times London Page 12 1054
Arts: Radiant Ravel - Music Publication 930315FT Processed by FT 930315 By DAVID MURRAY

Except in the most ingenious and tactful productions L'Enfant et les Sortileges, the 'fantaisie lyrique' Ravel wrote with Colette, is rarely as enchanting on stage as it can be in concert. Colette's little moral fable animates such a variety of things - chairs and crockery, birds and beasts, wallpaper and the fire on the hearth - that the stagecraft may detract from the radiant tenderness of the score.

On Friday, Simon Rattle and his City of Birmingham Symphony brought it off charmingly in the Festival Hall. Elise Ross sang an appealing Child, neither too winsome nor too fretful, though 'Toi, le coeur de la rose' can never be simple enough (and wasn't here). Lillian Watson made a gracious Princess, though in quite unintelligible French; and was it her choice or Rattle's to take the Fire's music so slowly? No sparks there; the Ashes who swallow her up were more effective, with a good chamber choir from the Welsh College of Music and Drama.

The rest of the personnel, doubling and tripling roles as required, were first-rate. In even more roles than that, Christine Cairns was delightful, starting with reproachful Maman; the duet of her Chinese Cup and Peter Hall's Wedgwood Teapot was both magical and funny. Mary King and David Wilson-Johnson yowled the X-rated Cats with high relish (and uncommon accuracy, too).

The other sub-principals, Lynda Russell and David Thomas, were no less in the spirit of the thing, and Rattle - once past a rushed opening (the winding oboes were too sprightly to suggest the right static torpor) - lit up many pages of the score: a tripping beat in the shepherds' music, a haunted garden-vista with night birds (the muttering animals a touch too loud, though), an elegant dragonfly ballet.

This fetching performance deserved a fuller house. Perhaps the first half of this 'Toward the Millenium' programme failed to entice: middle-period Frank Bridge, and his 14-year-old pupil Benjamin Britten. Bridge's Enter Spring is bright and well-made, very much of its period, and thoroughly English in its gait and manner despite all its Debussyisms. Somehow it has never seemed to take a firm hold on concert-goers' imaginations: too sturdily made, perhaps.

As for Britten's Four French Songs, delicately limned here by Lynda Russell, they are precocious and eclectic, but too jerry-built to be satisfying rather than 'interesting'. It does the composer no service to pretend that they belong to the real Britten canon - they are curiosities, not grown-up concert fare.

Festival Hall, London

GB United Kingdom, EC P7929 Entertainers and Entertainment Groups CMMT Comment & Analysis P7929 The Financial Times London Page 11 448
Arts: Weber's 'Der Freischutz' - Opera in Zurich Publication 930315FT Processed by FT 930315 By ANDREW CLARK

The Ruth Berghaus fan club is growing - if you judge by the number of continental opera house managements playing along with her theatrical riddles. The east German director's footprints are now so commonplace that the novelty value of her pioneering west European productions has given way to predictability, in the way she approaches each work and the extreme reactions she provokes. But the new staging of Der Freischutz at the Zurich Opera House was different, if only because she was working for the first time with Nikolaus Harnoncourt.

Harnoncourt has been searching for a compatible operatic partner ever since the death of Jean-Pierre Ponnelle, with whom he worked so profitably on Zurich's Monteverdi and Mozart cycles. On the surface, Berghaus and Harnoncourt have something in common. They approach the work in hand without preconceptions based on tradition or received opinion. Both are a fund of stimulating ideas and insights, and both challenge you to think: there is never a dull moment. Nor can you ignore the exactness of observation and execution they bring to everything they do.

There the similarities end. Where Berghaus uses each opera as a floor for her own theatrical fantasy, Harnoncourt's priority is reading the composer's mind - based on textual fidelity. Rarely can Weber's early Romantic score have sounded less folksy-sentimental or so expressionist. The music emerged full of unvarnished timbres, unexpected instrumental voices, sudden impulses and unsettling harmonies. You hear what Wagner heard in Weber, the Wolf's Glen scene providing a clear pre-echo of Alberich's 'Horst du, Hagen, mein Sohn?'. None of the tempo extremes were gratuitous: even the beautifully still opening to 'Leise, leise' seemed to heighten the music's inner tension.

Above all, Harnoncourt reminds us that the Freischutz of Weber and Kind lies somewhere between heaven and hell. Berghaus's Freischutz, by contrast, is all hell - a nightmare vision of humanity. The devil-figure of Samiel is ever-present, dancing across stage at the start of each scene in the same black hat and cape as the rest of the cast. The Hermit and Ottokar have no identity other than as spokesmen for church and state within a drab Brechtian society. There is no forest, the action unfolding instead against a background of abstract panels (designed by Hartmut Meyer). Nor is there a glint of hope: in the final scene, the people brush themselves clean from the preceding unpleasantness, as history prepares to repeat itself.

All this tells us more about Berghaus, her political beliefs and theatrical influences, than it does about Freischutz. As usual, she has nothing to say about individual characters, and the Wolf's Glen - Weber's masterstroke as a musical dramatist - is flattened into a series of pretentious choreographic routines. After Achim Freyer's landmark Stuttgart production of the early 1980s, it would be a poor soul who wanted to return to Freischutz with stage extras dressed up as wild boars. But with Berghaus, the drive to demythologise Freischutz as one of the great German cultural emblems goes too far.

Matti Salminen's Kaspar dominated the Zurich cast with his giant figure and bear-hug of a voice, probably too generous in timbre for the role. Reiner Goldberg's Max, playing a bookish Faust to Salminen's grandiose Mephisto, sounded like someone who has sung a part too often. Inga Nielsen was a cool Agathe, Malin Hartelius a pretty, unsoubrettish Aennchen.

In repertory until March 27

CH Switzerland, West Europe P7922 Theatrical Producers and Services CMMT Comment & Analysis P7922 The Financial Times London Page 11 598
Arts: Today's Television Publication 930315FT Processed by FT 930315 By CHRISTOPHER DUNKLEY

Hopes that BBC2 might resist the proletarianisation of television proceeding so fast on other channels look slim when series such as Soundbites start to arrive (7.30 BBC2). Like 'Harry Enfield's Guide To Opera' this assumes that those who grew fond of 'Nessun Dorma' during the World Cup and 'The Four Seasons' now that soccer fan Nigel Kennedy has recorded it, will go for other classical music provided it is camouflaged heavily enough. Thus today we are promised that the 'soundbites' will include a mouthful from trombonist Christian Lindberg 'in full leather bike gear'. Oh good. Horizon sets out to discover 'Whatever happened to star wars', Ronald Reagan's super wizzo giant ray gun system for shooting enemy missiles out of the sky (8.00 BBC2). World In Action reveals that almost half the UK's ambulance services are failing to meet government standards. Perhaps we ought to have a patients' charter . . . (8.30 ITV). At the beginning, the young doctors in Medics spent as much time visiting one another's beds as their patients'. Now it is just another bedpan and face-mask hospital series (9.00 ITV).

GB United Kingdom, EC P7812 Motion Picture and Video Production TECH Services P7812 The Financial Times London Page 11 214
Arts: Squirrels - Theatre Publication 930315FT Processed by FT 930315 By MALCOLM RUTHERFORD

David Mamet's short comedy at the King's Head in Islington is a gloriously superficial play on words and meanings, here magnificently performed by the cast of three. Whether it would stand up to acting and direction any less good must be open to doubt, for I am beginning to think that the best of modern American theatre depends on style and playing rather than writing and substance. John Guare's Six Degrees of Separation comes to mind.

Squirrels is about writer's block, or at least that is the ostensible subject. It could be equally about anyone losing their grip on words, memory and associations and picking them up from other people, except that it is pitched at quite a high intellectual level. It is like Harold Pinter, with more wit and less menace, and played faster.

The writer with the block is called Arthur. Was this a dig at Arthur Miller before his Indian summer? There must be some association here. Anyway, this Arthur is a short story writer. Played by Edward Petherbridge (no less), he is in search of a symbolic story involving squirrels (or perhaps just one) in New York's Central Park. The pursuit has been going on for some 15 years.

'The squirrel,' says Arthur's young assistant (Steven O'Shea), 'is a potentially non-representational animal.' The real question, however, is whether a squirrel has guts, and the question behind the question is whether Arthur can put guts into his story.

They try it on the drawing board. They try the opening sentences over and over again, the assistant gaining an increasingly assertive role. There is also the influence of the cleaning woman (Sara Kestelman) who has writing aspirations of her own. In the end, squirrels get nowhere: Arthur turns to geese, but not without diversions along the way. There is a marvellous line about a lady walking in Central Park who has forgotten to feed her Doberman for three weeks.

In the meantime, we have been through quite a lot of literary theory. 'What is a metaphysical restaurant?' 'Oh, it's just an idea really.' 'What does it mean?' 'To me, or in general?' And so it goes on, gently, lightly, amusingly.

The cast is terrific. The key to Petherbridge's Arthur is not that he has given way to drugs, cosmic boredom or anything like that: he has genuine writer's block. The blank sheet of foolscap can begin to fill him with fright. As his assistant, O'Shea has no special hang-ups either. He is a literature graduate who just wants to write: at the start he even wears his college tie, (Arthur being in a base ball cap). Ms Kestelman does a lot of her playing by looks: sometimes quizzical, sometimes inviting, always captivating, permanently sure of herself. This is not the kind of part that would come from a British writer. She appears utterly classless, and no one comments.

Mamet's new play Oreanna, about academic sexual harassment, will be presented at the Royal Court in June directed by Harold Pinter. The mouth waters.

King's Head Islington, London for six weeks. (071) 226 1916

GB United Kingdom, EC P7922 Theatrical Producers and Services CMMT Comment & Analysis P7922 The Financial Times London Page 11 546
People: Sir Alexander Gibb & Partners Publication 930315FT Processed by FT 930315

Scott Steedman has been appointed director and divisional chief executive of Sir ALEXANDER GIBB & Partners' geotechnical division.

Sir Alexander Gibb and Partners GB United Kingdom, EC P8711 Engineering Services P154 Nonresidential Building Construction P1611 Highway and Street Construction PEOP Appointments P8711 P154 P1611 The Financial Times London Page 10 62
People: PSA Projects Publication 930315FT Processed by FT 930315

Jim Ratliff, formerly a director of DHV Burrow-Crocker, and Keith Cullen, formerly a principal with Pace, have been appointed directors of PSA Projects, a subsidiary of TARMAC.

PSA Projects GB United Kingdom, EC P6512 Nonresidential Buildings Operators PEOP Appointments P6512 The Financial Times London Page 10 55
People: Tay Homes Midland Publication 930315FT Processed by FT 930315

Paul Flello, md of TAY HOMES Midlands, has been appointed to the main board.

Tay Homes GB United Kingdom, EC P1521 Single-Family Housing Construction PEOP Appointments P1521 The Financial Times London Page 10 43
People: Costain Engineering & Construction Publication 930315FT Processed by FT 930315

George May, md of Costain's civil engineering division, and Mike Quirke, md of the construction and management divisions, have been appointed directors of COSTAIN Engineering & Construction.

Costain Building and Civil Engineering GB United Kingdom, EC P1521 Single-Family Housing Construction P8711 Engineering Services P1611 Highway and Street Construction P162 Heavy Construction, Ex Highway PEOP Appointments P1521 P8711 P1611 P162 The Financial Times London Page 10 76
Construction Contracts: Office development plan in Zimbabwe Publication 930315FT Processed by FT 930315

A joint venture between COSTAIN (AFRICA) and JOHN SISK & SON (PVT) has been awarded a contract by Old Mutual Properties for a major office development in Harare, worth Pounds 24m.

The project, which is believed to be the largest of its kind in Zimbabwe, includes 26,000 sq metres of office space in two identical blocks, separated by an eight-storey atrium, which will provide an American-style indoor shopping mall, with more than 50 shops. The development includes an unusual passive ventilation system, which will provide comfortable conditions within the building, without resorting to air conditioning.

The scheme, developed by the architect, Pearce Partnership and engineers Ove Arup & Partners, uses the concrete structure of the building to produce cool air.

The Costain-Sisk joint venture has reduced the anticipated construction programme by offering an alternative design for the substructure works. This allows the two-storey basement car park to be constructed using a bored pile perimeter retaining wall, which will be geonailed back to the surrounding soil to give temporary lateral support whilst the permanent construction is under way.

Work on the development is scheduled for completion in 34 months time.

Costain (Africa) John Sisk and Son ZW Zimbabwe, Africa P1542 Nonresidential Construction, NEC MKTS Contracts P1542 The Financial Times London Page 10 224
People: Constructive careers Publication 930315FT Processed by FT 930315

Costain, the struggling construction and mining company, has opted to promote its internal candidate, chief financial officer Alan Lovell, to the position of finance director following an outside search to fill the job vacated by Tom Slee at the end of last year.

Group chief executive Peter Costain says the headhunters short-listed three outside candidates. 'We wanted to test the market because Alan had only just started at the time. But in his four months with us he has impressed all those working with him, including the banks.' He reports that the other candidates available amounted to 'a very good selection.'

The sale of Costain's Australian coal mining interests has been interrupted by complex legal proceedings in the US, in turn raising a questionmark over the group's recent refinancing arrangements which are consequent on the sale.

Lovell, 38, joined from Conder Group, where he had been chief executive for five months before the company went into receivership last autumn. He had been at Plessey between 1980 and 1989, in a series of positions, including as finance director of Plessey Avionics. In 1985 he was seconded to the corporate finance department of Kleinwort Benson, working on the defence of Plessey against the first GEC bid.

Costain Group GB United Kingdom, EC P1521 Single-Family Housing Construction P1611 Highway and Street Construction P1622 Bridge, Tunnel and Elevated Highway P1629 Heavy Construction, NEC PEOP Appointments P1521 P1611 P1622 P1629 The Financial Times London Page 10 250
Construction Contracts: Oil production Publication 930315FT Processed by FT 930315

A joint venture of FRANKLIN & ANDREWS and TENMAR-ECS of Norway, has been appointed by Conoco Norway Inc on the Heidrun project. Services include quantity surveying and fabrication measurement, covering the construction of the topsides modules at four yards in Norway and one yard in the UK.

Franklin and Andrews Tenmarecs NO Norway, West Europe GB United Kingdom, EC P1389 Oil and Gas Field Services, NEC MKTS Contracts P1389 The Financial Times London Page 10 85
Construction Contracts: Shopping centre Publication 930315FT Processed by FT 930315

Five contractors have been asked to tender for a major upgrading at LAND SECURITIES' 230,000 sq ft Ards Shopping Centre, Newtownards, Northern Ireland.

Works will include refurbishment and a 36,000 sq ft extension providing seven new shops together with an 8,000 sq ft anchor store.

Land Securities GB United Kingdom, EC P1542 Nonresidential Construction, NEC MKTS Contracts P1542 The Financial Times London Page 10 74
Construction Contracts: Power station Publication 930315FT Processed by FT 930315

JOHN MOWLEM CONSTRUCTION has been awarded a contract for the Peel 'B' power station, Isle of Man, by the Manx Electricity Authority.

The turnkey contract, worth over Pounds 19m, is for the design and construction of a diesel-engined power station which will eventually replace Peel 'A'.

John Mowlem Construction GB United Kingdom, EC P1629 Heavy Construction, NEC MKTS Contracts P1629 The Financial Times London Page 10 76
Construction Contracts: Opencast mining scheme Publication 930315FT Processed by FT 930315

British Coal has awarded WIMPEY MINING a contract worth nearly Pounds 20m for opencast mining and land reclamation near Durham. Working on the site of a former deep mine at Rye Hill, Wimpey will be recovering 1.2m tonnes of coal over a three year period, some of which will be recovered by washing 3m tonnes of waste material from a disused colliery tip on the site. The coal will be delivered to British Coal's Wardley disposal point.

Wimpey Mining GB United Kingdom, EC P1221 Bituminous Coal and Lignite-Surface MKTS Contracts P1221 The Financial Times London Page 10 108
People: Bruce, from the frying pan into the fire Publication 930315FT Processed by FT 930315

David Bruce, who quit as head of finance and administration for the London Stock Exchange shortly after Peter Rawlins arrived as chief executive, has accepted the same job at an even more troubled City institution, Lloyd's of London. His appointment represents the final step in a process of streamlining of senior management initiated by new Lloyd's boss Peter Middleton.

The head of finance, John Gaynor, took early retirement at the age of 57 at the end of last year, and the head of administration, Bob Woodford, retires at the beginning of April at the age of 62 after five and a half years in the job. The two jobs have now been combined, leaving just four senior executives - the other three responsible for regulatory services, marketing services, and systems and operations - reporting to Middleton.

Bruce, 46, moves from Guinness Mahon, where he had been finance director since 1990. An old Etonian, his first years in the City included spells at Peat Marwick and Cazenove. He got an early taste of Lloyd's when serving on the Wilson Committee set up in 1977 to review the City. He says he 'mugged up' on the market before it was decided that Lloyd's should be studied by a separate commission.

In 1979 he moved to Royal Dutch Shell, ending up as treasurer and controller of Shell UK, before moving to the stock exchange in 1986. Passed over as chief executive, he left shortly afterwards; the finance department was subsequently thoroughly overhauled. Rawlins, chosen in his stead, resigned last week over the Taurus fiasco.

GB United Kingdom, EC P6411 Insurance Agents, Brokers, and Service PEOP Appointments P6411 The Financial Times London Page 10 294
Construction Contracts: Building jails in Pennsylvania Publication 930315FT Processed by FT 930315

TRAFALGAR HOUSE CONSTRUCTION INC, a Pittsburgh-based company, has won two contracts worth Pounds 47m (USDollars 65m) for jails in Pennsylvania.

The largest is a Pounds 40m (USDollars 55m) subcontract to build the main structure for the new Allegheny County Jail, Pittsburgh.

Work has recently commenced on the building which will be 16 storeys at its highest point and will contain 1,800 cells. The company must complete the main structure and cast the cells by the end of this year so that other subcontractors can begin installing detention systems and mechanical and electrical works. Four tower cranes will be used to ensure that this demanding construction programme is met.

Once the main structure has been erected, work will begin on the jail's brick and curtain wall exterior and finishes to the 975,000 sq ft interior, including the installation of security ceilings, painted block walls and epoxy coated floors. Completion is scheduled for 1995.

Work has also commenced on a Pounds 7m (USDollars 10m) contract to construct a two-storey county jail in Erie. Trafalgar House Construction Inc is demolishing a building and clearing 17 acres of woodland before carrying out a cut and fill operation.

The 175,000 sq ft building will contain 200 cells when it is completed at the end of this year.

Trafalgar House Construction Inc US United States of America P1522 Residential Construction, NEC MKTS Contracts P1522 The Financial Times London Page 10 246
Management: A timely tip for manufacturers Publication 930315FT Processed by FT 930315 By ANDREW BAXTER

Sir Alistair Frame, a former denizen of boardrooms from RTZ to the old Davy and now chairman of both British Steel and Wellcome, has an urgent message for fellow chairmen and chief executives: take some time out from running your companies.

Sir Alistair, who is chairman of the CBI's 15-month-old National Manufacturing Council, is not suggesting they should quit their posts en masse. Rather, he says, they need to find space for thinking about new ideas.

Whatever the distractions of running their companies in tough conditions, there should always be time, he says, to learn from the experiences of other UK companies, and from successful manufacturing companies overseas.

As the first signs of light emerge for recession-bound UK manufacturers, and the government talks of industry taking advantage of sterling's devaluation to boost exports, the issue of the UK's manufacturing effectiveness becomes increasingly important.

The point is not lost on the council, which is perhaps best known for its role as one of the many organisations lobbying the government on the importance of providing the right environment for manufacturing industry to flourish.

That, says Sir Alistair, is going reasonably well, but is one of only four key tasks that the council has set itself. The others are to improve the relationship between industry and the financial world, in particular the City; to improve the image and status of manufacturing industry across society; and to lobby businesses to improve their competitiveness.

Surprisingly, perhaps, Sir Alistair believes this internal lobbying process is the most important, focusing as it does on issues such as how industries can improve their service to customers, marketing, innovation, product quality and other ingredients of competitiveness.

Getting all these things right is the route to what is commonly called 'world class' manufacturing. But the consensus among observers of the UK manufacturing scene seems to be that, while all the brightest ideas in manufacturing can be found in use in the UK, they are not applied nearly frequently enough.

That was borne out by a survey last month co-sponsored by the Design Council and EDS-Scicon, the biggest UK information technology services company. This found that less than half of UK manufacturing companies claim to practise concurrent engineering, a process which cuts product development times by enabling design and manufacturing to take place simultaneously.

Clearly, an important way to spread the word about new methods in manufacturing is for companies to share their experiences.

The evidence suggests larger companies are more confident about doing that without always worrying that they are giving away commercially sensitive information. But the council is hoping to attract companies of all sizes to a series of seminars beginning next month, at which executives from different companies can learn from each other.

Sir Alistair will also be addressing a conference called Winning the Market - Industry on the Move, on April 28 and 29, organised by the Institution of Mechanical Engineers.

The conference, to be held at a hotel in Hertfordshire, will be similar to the well-attended Cambridge Manufacturing Forum series in the 1970s. Senior European industrialists will be examining the importance of understanding and developing markets, the coherent integration of marketing, design and manufacturing, and the management of technological advantage and innovation.

GB United Kingdom, EC P99 Nonclassifiable Establishments MGMT Management Sir Alastair Frame, Chairman National Manufacturing Council (UK) P99 The Financial Times London Page 9 575
Management: What's up for grabs? - A report on new opportunities for service companies to bid for government contracts Publication 930315FT Processed by FT 930315 By JOHN WILLMAN

Opportunities to sell business services to a customer with a triple-A credit rating are rare in the present recession. The UK government's market-testing programme to put Pounds 1.5bn of civil service work out to tender has therefore excited widespread interest among service companies in the UK and abroad.

Two conferences staged by the Cabinet Office Efficiency Unit to sell the programme to business (the most recent on Friday) have each attracted 500 executives to learn more about the work being market-tested and how to bid for it.

Bidding for government contracts is a well-established part of business for companies in the defence industry. And service companies in fields such as office cleaning, catering, security guarding and printing have been winning contracts from government departments, local authorities and the health service since the start of the 1980s.

But the government's latest programme of market-testing represents a 50-fold increase in its contracting-out programme.

For the first time, core civil service activities such as collection of statistics, management of government computer facilities and fishery protection surveillance operations are to be put out to tender. And many more support services are on offer, including payroll, audit, accountancy, office services and legal advice. Many are advertised in the press; alternatively, companies can find out what work is available by contacting government ministries or the Efficiency Unit.

There is also a drive to attract small and medium-sized enterprises into the market, since ministers are keen to stimulate competition for contracts.

According to the Efficiency Unit, more than 300 of the 350 contracts on offer in this first round of market-testing involve fewer than 200 jobs - and 83 currently employ less than 10 people.

Executives attending the Efficiency Unit conferences have been keen to know more about what would be expected of them and if previous experience in contracting for government will be necessary.

According to Ian Williams of the Efficiency Unit, those in charge of awarding contracts will be looking for reliability, quality of staff and a track record in providing the sort of services out to tender.

Competing bids will be judged on three sets of criteria:

Capability - has the bidder the people and skills to do the job? Particular attention will be paid to the management and supervisory back-up to be provided.

Technical assessment - whether the bid meets the requirements set out in the specification. BS5750 - a quality management standard - will not generally be a requirement.

Financial standing - the robustness of the bid given the commercial and financial strength of the company.

A common concern among potential bidders is that there will be an element of bias towards the in-house team, which will normally be competing to retain the work. Sir Peter Levene, the government's efficiency adviser, says great efforts have been made to ensure there will be 'fair and open competition' for contracts.

Those responsible for drawing up contract specifications and evaluating bids will be separated by 'Chinese walls' from the staff currently doing the work. New costing guidance has been drawn up to ensure that in-house bids fully reflect overheads and start-up costs.

The responsibility for ensuring fair play will ultimately lie with the National Audit Office, the government expenditure watchdog, Sir Peter says.

Another concern is whether contract specifications will be too rigid to permit contractors to develop new and more flexible approaches to doing the work. 'Bidders will be encouraged to offer innovative or novel proposals,' according to Ian Williams. 'The successful bidder's proposal, as modified during discussions, will form part of the contract document.'

Winning the business will not be the end of the process, however. Extensive arrangements will be put in place to check quality standards and monitor services - including random checks, regular inspections and audit of complaints.

A second round of market-testing will be launched by the Efficiency Unit in the autumn, with at least a further Pounds 1bn of business put out to tender.

---------------------------------------------------- VALUE OF MARKET TESTING BY DEPARTMENT ---------------------------------------------------- Pounds m ---------------------------------------------------- Others 241 N. Ireland 40 Agriculture 42 Customs & Excise 53 Environment 58 Employment 72 Trade & Industry 80 Home Office 120 Defence 323 Inland Revenue 282 Social Security 127 ---------------------------------------------------- Source: Cabinet Office ----------------------------------------------------

GB United Kingdom, EC P73 Business Services P9199 General Government, NEC MGMT Management MKTS Contracts P73 P9199 The Financial Times London Page 9 751
Management: Tupe or not Tupe. . . Publication 930315FT Processed by FT 930315 By DAVID GOODHART

Could it be the Thatcherite nightmare is coming true? That British legislation to promote the free market in the UK, namely Compulsory Competitive Tendering in local and central government, is being thwarted by European legislation to protect the rights of workers, namely the transfer of undertakings regulations?

The UK's transfer regulations, known as Tupe, stem from the EC's 1977 Acquired Rights Directive which was designed to protect some employee rights when businesses or undertakings are transferred from one employer to another. The government insists Tupe will rarely apply to contracting-out, while trade unions and many lawyers insist it will invariably apply - making it harder for private business to make money on government contracts by cutting the wages bill. Private contractors want clarification on their potential liabilities before tendering.

The government has been lobbying hard in Brussels for the directive to be revised to exclude contracting-out. But the UK is unlikely to get what it wants unless the unions abuse the leverage Tupe seems to give them or unless a wave of retrospective Tupe claims are unleashed.

There are two important questions about Tupe: what do the regulations require and when do they apply? Both questions are difficult to answer definitively.

The regulations insist staff cannot be dismissed as the result of a transfer, although it may be possible to dismiss people soon after for other reasons. The regulations also insist terms and conditions of employment cannot be changed without consent and collective deals and union recognition must be carried over.

There is less clarity about two further things - whether pension terms can be altered and how long the previous employment conditions must be maintained. The Acquired Rights Directive specified a period of one year but that was not mentioned in the UK's Tupe regulations.

When the regulations apply depends on the definition of a 'transfer' and an 'undertaking'. To take two extremes, the regulations would normally apply if a contractor was employing substantially the same staff as before on the same premises with the same equipment. The regulations would not normally apply if the contractor employs none of the existing staff and conducts his operation at different premises with his own equipment.

Recent judgments at the European Court of Justice suggest EC judges favour a broad definition of both a transfer and an undertaking which would capture a broad range of the services currently being prepared for contracting-out. It is even possible to be caught when a council or government department terminates its existing service and buys in a new service.

In general terms manual worker operations are more likely to be caught by Tupe than white collar administrative functions. That is unfortunate for contractors as manual operations are usually easier to save money on through job cuts and wages are usually more generous than the private sector.

What are the solutions? Contractor lobby groups believe Tupe will have a greater effect than the government has admitted.

But the lobbyists believe that even without legal clarity there are things that could be done. Departments could slim down and reorganise prior to contracting out, although that might still transgress the regulations and seems unpopular with the government. The government could indemnify companies against Tupe-imposed costs or extend contract periods to make it easier for companies to recoup the extra costs.

Alternatively public authorities should be required to make a 'realistic' return on capital on services such as cleaning. The current requirement for cleaning is 5 per cent which allows them to pay wages on average 10 per cent above the private sector.

But according to John Hall of the Cleaning and Support Services Association the preferred, but not foolproof, method of Tupe avoidance for companies will be the refusal to take on existing staff unless they agree to changes in their terms and conditions.

GB United Kingdom, EC P9121 Legislative Bodies P9199 General Government, NEC P9721 International Affairs MKTS Contracts GOVT Regulations P9121 P9199 P9721 The Financial Times London Page 9 677
Economics: Focus turns to UK Budget outcome Publication 930315FT Processed by FT 930315 By EMMA TUCKER

THERE have been few clues as to what tomorrow's Budget will deliver in the UK. But with the public sector borrowing requirement set to rise to between Pounds 45bn and Pounds 50bn in the next financial year, the chancellor is expected to announce some revenue raising measures.

An alteration to the VAT system is one possibility. The chancellor has the option of either raising the rate of VAT - currently 17.5 per cent - or extending its base to include items such as food, newspapers and children's clothes.

One drawback would be the upwards pressure such a move would put on the retail prices index. But as the RPI figures at the end of this week are expected to show, the government still has plenty of room on inflation.

The rest of the week will be taken up with other UK figures, including manufacturing output, unemployment figures and the February PSBR.

Other economic highlights of the week follow. The figures in brackets are the consensus of economists forecasts from MMS International, a financial information company.

Today: UK, January manufacturing output (up 0.2 per cent on month, up 1.1 per cent on year), January industrial production (down 0.2 per cent on month); France, February consumer prices index (up 0.2 per cent on month, up 1.9 per cent on year); Belgium, meeting of economy and finance ministers in Brussels; Italy, Italian Socialist Party National Assembly; Austria, 1992 balance of payments; US, auto sales March 1-10 (6.3m), truck sales March 1-10.

Tomorrow: UK, Budget statement, February PSBR (Pounds 4.5bn); US, February housing starts (1.25m), February building permits, Q4 current account, Johnson Redbook week ended March 13; Canada, January manufacturing orders (up 1 per cent on month), January manufacturing shipments (up 0.5 per cent on month); Japan, February trade balance (Dollars 11.9bn).

Wednesday: UK, February retail sales (up 0.15 per cent on month, up 1.9 per cent on year); US, February CPI (up 0.3 per cent), excluding food and energy (up 0.3 per cent), February industrial production (up 0.4 per cent), February capacity utilisation (79.7 per cent), February real earnings; Canada, February lead indicator (up 0.2 per cent on month), advanced department store sales (up 1 per cent on year), January wage settlement increases (1.6 per cent); Japan, January industrial production, January shipments.

Thursday: UK, February unemployment (up 35,000), January average earnings (4.75 per cent), January unit wage costs (down 0.3 per cent on year), February M4 (up 0.5 per cent on month, up 3.3 on year), M4 lending (Pounds 1.5bn); Germany, Bundesbank council meeting; US, January merchandise trade balance (Dollars 7.2bn deficit), exports (Dollars 39bn), imports (Dollars 46.1bn), initial claims week ended March 6 (360,000), state benefits week ended February 27, money supply data for week ended March 8; Canada, January merchandise exports (up 1.4 per cent on month), imports (flat), trade surplus (CDollars 1bn); Australia, January housing finance, January export prices, Q4 GDP (up 0.5 per cent on quarter), Q4 GNE.

Friday: UK, February retail prices index (up 0.5 per cent on month, up 1.7 per cent on year), excluding mortgage interest payments (up 3.2 per cent on year); France, (up 0.5 per cent on month); US, March Michigan sentiment, February Treasury Budget.

During the week: Germany, January retail sales, February WPI (up 0.3 per cent on month), February PPI (up 0.2 per cent on month, up 0.7 per cent on year), February M3 (flat); Spain, January CPI (up 5 per cent on year); Netherlands, February CPI (up 0.3 per cent on month, up 2.4 per cent on year), January trade balance; Italy, January PPI (up 2.5 per cent on year), January WPI (up 4.4 per cent on year), January industrial production (down 2.6 per cent on month); Japan, February money supply, February broad liquidity.

GB United Kingdom, EC QR European Economic Community (EC) US United States of America AT Austria, West Europe CA Canada P9311 Finance, Taxation, and Monetary Policy P9611 Administration of General Economic Programs GOVT Government News ECON Economic Indicators P9311 P9611 The Financial Times London Page 8 684
The Week Ahead: Diary Dates Publication 930315FT Processed by FT 930315

PARLIAMENTARY DIARY

TODAY

Commons: Questions to social security ministers, Church Commissioners and Lord Chancellor's Department. Disability (Grants) Bill, second reading. National Health Service Amendment Regulations.

Lords: Delegated Powers Scrutiny Committee, approval motion. Housing and Urban Development Bill, committee. Video Recordings Bill, report.

Select Committees: Foreign Affairs - subject: Europe after Maastricht. Witness: Bruce Millan, EC Commissioner, room 15, 4.15pm.

Public Accounts - subject: Civil Service Catering. Witness: Mr Michael Scholar, deputy

secretary, HM Treasury,

room 16, 4.30pm.

TOMORROW

Commons: Employment questions. Questions to the Prime Minister. Budget statement by Chancellor Norman Lamont. Budget debate.

Lords: Trade Union Reform and Employment Rights Bill, committee. Penalty for Murder Bill, third reading. WEDNESDAY

Commons: Trade and Industry questions. Budget debate, second day.

Lords: Debates on university developments and crime.

Select committees: Parliamentary commissioner for administration - subject: Report of the parliamentary commissioner for administration for 1991. Witnesses: Mr Stephen Orchard, chief executive, Legal Aid Board; Sir Michael Partridge, permanent secretary, department of social security; Mr Michael Bichard, chief executive, Benefits Agency, room 19, 10am.

Foreign Affairs - subject: FCO expenditure. Witness: Sir David Gillmore, permanent under secretary of state and head of the diplomatic service, Foreign and Commonwealth Office, room 8, 10.30am.

Trade and Industry - subject: British aerospace industry; Witnesses: British Aerospace; Electronic Engineering Association, room 15, 10.30am.

Employment - subject: Import and export of jobs. Witnesses: GKN, Nissan Motor Manufacturing (UK), room 15, 4.15pm.

Health - subject: Dental services. Witness: department of health, room 21, 4.15pm.

THURSDAY

Commons: Northern Ireland questions. Questions to the Prime Minister. Budget debate, third day.

Lords: Trade Union Reform and Employment Rights Bill, committee. Judicial Pensions and Retirement Bill, Commons amendments.

Select committee: Foreign affairs - subject: Europe after Maastricht. Witness: Sir Leon Brittan, EC Commissioner, room 15, 4.15pm.

FRIDAY

Commons: Debate on tourism.

Lords: Not sitting.

UK COMPANIES

TODAY

BOARD MEETINGS:

Finals:

Abbott Mead Vickers

Alliance Trust

Antofagasta Hldgs.

BPP

Claremont Garments

Delta

Emess

English China Clays

HSBC Hldgs.

IMI

JIB

Laporte

Metalrax

Nichols (JN) (Vimto)

Peek

Ransomes

Record Hldgs.

Rugby

Takare

Utd. Uniform Services

Wassall

Watmoughs

Interims:

European Leisure

MAI

TOMORROW

COMPANY MEETING:

Witan Investment, New Horticultural Hall, Greycoat Street, SW., 7.15.

BOARD MEETINGS:

Finals:

Graseby

Hampden

Henderson Highland Tst.

Law Debenture

Lionheart

Marley

River & Merc Am Cap & Inc

Simon Engineering

Thornton Asian Emerging Mrkts

Wimpey (George)

Interims:

Paterson Zochonis

Scholes

WEDNESDAY MARCH 17

COMPANY MEETING:

Gestetner Hldgs., Hyde Park Hotel, 66, Knightsbridge, SW., 10.00.

BOARD MEETINGS:

Finals:

Avonside

Bowthorpe

British Mohair

Celestion Inds.

Chieftain

Daniels (S)

Expamet Intl.

Fisher (James)

Plantsbrook

Portals

Premier Cons. Oilfields

Singapore Para Rubr Est

Spandex

Thomson

Try

WSP Hldgs.

Interims:

Dunton

Golden Hope Plants.

Minorco

THURSDAY MARCH 18

COMPANY MEETINGS:

Burlington Group, The Honourable Artillery Co., Armoury House, City Road, EC., 11.00.

River & Mercantile Trust, New Connaught Rooms, Great Queen Street, WC., 11.30.

BOARD MEETINGS:

Finals:

Arjo Wiggins Appleton

Automated Security

Baynes (Charles)

Cattle's Hldgs.

Coats Viyella

Commercial Bank of Lon.

CrestaCare

Davis Service

Edmond Hldgs.

Evans Halshaw

Guinness

Kwik-Fit

Legal & General

Mandarin Oriental

Martin Currie Pacific

Rentokil

Rotork

Rutland Trust

Schroders

Seafield Resources

Telemetrix

Trade Indemnity

Trio Hldgs.

United Biscuits

Vinten

Interims:

Green (Ernest)

Melville

FRIDAY MARCH 19

COMPANY MEETING:

Cardiff Property, 56, Station Road, Egham, Surrey, 12.00.

BOARD MEETINGS:

Finals:

Anglia Television

Arcolectric

Britannic Assurance

Global Group

Haden MacLellan

Hornby

IoM Steam Packet

Molins

Interims:

Bennett & Fountain

Fortnum & Mason

Company meetings are annual general meetings unless otherwise stated.

Please note: Reports and accounts are not normally available until approximately six weeks after the board meeting to approve the preliminary results.

DIVIDEND & INTEREST PAYMENTS

TODAY

ASLK-CGER IFICO Steppd. Coupon Gtd. Nts. 1995 Pounds 50,000

Atlantic Richfield Dollars 1.375

Bear Stearns Fltg. Rate Nts. 1994 Dollars 95.31

Bradford & Bingley Bldg. Society Fltg. Rate Nts. 1995 Pounds 180.89

Brit. Gas Intl. Fin. 10 1/8 % Gtd. Bds. 1998 CDollars 101.25

Brunswick Dollars 0.11

Christiania Bk. og Kreditkasse Fltg. Rate Sub. Nts. 1994 Dollars 265.42

Do. Fltg. Rate Sub. Nts. 2001

Dollars 161.15

Citicorp O'seas. Fin. 10% Pounds /Dollars option Gtd. Bds. 1993 Pounds 100

CSX Dollars 0.38

Daejan 12p

Dana Dollars 0.40

Edinburgh Inv. Tst. 3.65% Cm. Pf. 1.825p

First Interstate O'seas. Gtd. Fltg. Sub. Nts. 1995 Dollars 132.71

FPL Dollars 0.61

Gartmore Amer. Securities 11 3/8 % Deb. 2014 Pounds 5.6875

Gen. Motors Acceptance 9 1/8 % Nts. 1996 Dollars 456.25

Honeywell Dollars 0.2225

Invesco MIM Jersey Gilt Ptg. Rd. Pf. 0.4p

Louisiana Land & Expl Dollars 0.25

Marks & Spencer Fin. 9 3/4 % Gtd. Nts. 1993 Pounds 97.50

Marubeni Intl. Fin. 7% Bds. 1994 Y700,000

Do. 6 1/2 % Series A Dual Currency Yen/Dollars Bds. 1997 Y650,000

Do. 6 1/2 % Series B 1997 Y650,000

MEPC 11 1/4 % Bds. 1993 Pounds 112.50

Midland Intl. Fincl. Servs. Gtd. Fltg. Rate Nts. 1999 Dollars 252.78

Newcastle Bldg. Society 12 5/8 % PIBS Pounds 6.3125

Nobo 1.5p

Pennzoil Dollars 0.75

Quebec (Province of) 12 1/4 % Ln. 2020 Pounds 6.125

Ragby Gtd. Fltg. Rate Nts. 1997 Dollars 13,043.75

Royal Bank of Can. Fltg. Rate Deb. 2085 Dollars 96.37

Royal Trustco Fltg. Rate Sub. Cap. Deb. 2085 Dollars 171.89

SAS-Scandanavian Airlines System 9 1/4 % Bds. 1999 FFr925

Shearson/Amer. Express 12 1/8 % Gtd. Nts. 1994 Dollars 606.25

Smith (David S) 2.75p

Sothebys Class A Ltd. Vtg. Dollars 0.15

Sumitomo Chemical 7.90% Nts. 1995 Y790,000

Sweden (Kingdom of) 9 3/4 % Ln. 2014 Pounds 487.50

Thomson Corp. Dollars 0.113

Trinova Dollars 0.17

Trizec 11 7/8 % Senior Debs. 1995 CDollars 118.75

TRW Dollars 0.47

UK 6% Funding Ln. 1993 Pounds 3

Wells Fargo Fltg. Rate Sub. Nts. 1994 Dollars 131.25

Whirlpool Dollars 0.275

TOMORROW

Agricultural Mortgage 7 3/4 % Deb. '91/93 Pounds 3.875

Citicorp O'seas Fin. Gtd. Fltg. Rate Nts. 1994 Dollars 15

Hoskyns 1.65p

Leeds Permanent Bldg. Society Fltg. Rate Nts. 1998 Pounds 183.39

NKK 5.3% Bds. 1999 Y135,444

Do. 5.4% Bds. 2000 Y138,000

Safeland 0.06p

Santander Fincl. Issuances Sub. Undated Var. Rate Nts. Dollars 2,773.44

UK 2% Index-Linked Treas. 1996 Pounds 2.04

Woolwich Bldg. Society 8% Nts. 1994

Dollars 400

WEDNESDAY MARCH 17

BP Cap. BV 9 1/8 % Gtd. Nts. 1994 Dollars 912.50

Bradford & Bingley Fltg. Rate Sub. Nt. 2005 Pounds 19,772.26

Export-Import Bank of Japan 9 1/2 % Gtd. Bds. 1999 Dollars 475

Local Authority short-dated bds. 10 1/4 % 1993 Pounds 5.2935

Nippon Light Metals 5.3% Bds. 1998 Y135,444

Do. 5.6% Bds. 2000 Y143,111

THURSDAY MARCH 18

Gold Intl. Fin. Tranche A Fixed/Fltg. Rate Sec. Nts. 2002 Y1,405,555

Japan Airlines 5.6% Bds. 2003 Y143,111

Lon. Scottish Bank 2.05p

MBL Fin. (Curacao) Ser. 9 6 7/8 % Gtd. Bds. 2003 Dollars 40,104.17

Do. Ser. 12 7 1/8 % Gtd. Bds. 2006 Dollars 33,447.92

Nationwide Bldg. Society Sub. Fltg. Rate Nts. 2000 Pounds 202.50

Pfizer Dollars 0.42

Rustenburg Platinum R0.625

Sumitomo Chemical 6.4% Bds. 1999 Y640,000

Witan Inv. 2.9p

Woolwich Bldg. Society 10 1/4 % Nts. 1993 Pounds 102.50

FRIDAY MARCH 19

American Intl. Dollars 0.14

Border TV 1.3p

Christiania Bank og Kreditkasse Reverse Fltg. Nts. 1997 Dollars 1,141.64

Elandsrand Gold R0.35

French (Thomas) 2.175p

Genbel Invs. R0.15

Inco Dollars 0.10

Leeds Permanent Bldg. Society 6 3/8 % Nts. 1993 Y63,750

Primadona 2p

Ransomes 5 1/2 % Cm. Pf. 1.925p

Singapore SESDAQ Fd. Dollars 0.03

Southvaal R1.40

Thames Water 9 1/2 % Cv. Sub. Bds. 2006 Pounds 237.50

UK 11 1/2 % Treas. '01/04 Pounds 5.75

Vaal Reefs Exploration R6.10

Western Deep Levels R2.10

SATURDAY MARCH 20

UK 10 1/2 % Exch. 2005 Pounds 5.25

GB United Kingdom, EC US United States of America JP Japan, Asia CA Canada SE Sweden, West Europe P9121 Legislative Bodies P99 Nonclassifiable Establishments GOVT Government News COMP Company News P9121 P99 The Financial Times London Page 8 1286
Gloom recedes on job prospects Publication 930315FT Processed by FT 930315 By ROBERT TAYLOR, Labour Correspondent

EMPLOYERS are more optimistic about job prospects for the second quarter of this year, Manpower, the employment services group, says.

In its survey of employment prospects published today Manpower says there are signs of an improvement in manufacturing, but warns of pointers to a sharp fall in public-sector employment during the next three months.

While 17 per cent of employers covered by the survey forecast increased staffing, 18 per cent believe there will be further job losses - a balance of 1 per cent expecting staff cuts. However, this represents a clear improvement on the balance of 16 per cent expecting cuts in the first quarter of this year and the balance of 2 per cent expecting a decrease in staffing for the second quarter last year.

Manufacturers were more optimistic this year than at the same time last year, with a balance of 5 per cent expecting more jobs against 2 per cent for the second quarter of 1992.

Ms Lilian Bennet at Manpower said: 'There are, encouragingly, some positive indicators in the results. This is endorsed by our experience in the marketplace where employers are using more temporary staff while assessing the strength of recovery and to give themselves greater flexibility.'

The survey reports an improvement in job prospects in the electrical and electronic engineering industry, with a balance of 9 per cent of employers expecting to increase their workforces against only 2 per cent for the same period last year.

However, prospects in the public sector have grown bleaker. Manpower says that 29 per cent of public-sector employers forecast job losses, while 9 per cent expect an increase, giving a balance of 20 per cent expecting a decline in staff numbers. In the same period last year a balance of 11 per cent expected cuts.

On a regional breakdown, employers in only three areas forecast improvements. A balance of 8 per cent of Scottish employers expect to increase their workforces, against balances of 5 per cent in the west of England and 5 per cent in Yorkshire and Humberside. All other regions expect, on balance, that job numbers will fall.

Manpower's survey is based on contacts with 1,941 companies during February.

GB United Kingdom, EC P9441 Administration of Social and Manpower Programs ECON Employment & unemployment P9441 The Financial Times London Page 7 401
Lords set to attack union fee proposals Publication 930315FT Processed by FT 930315 By ALISON SMITH

PRESSURE on the government to modify its plans to change the check-off arrangements through which trade union subscriptions are deducted automatically from employees' pay will intensify this week.

Tomorrow the House of Lords will have its first chance to amend the government's union reform legislation.

Under proposals outlined in the bill, employees would have to indicate their continuing approval of the arrangement every three years. At present there is no obligation to indicate approval.

Both Labour and Tory peers have put down changes to the government's proposal, reflecting disquiet about the move from unions and employers alike.

The point was the one on which the government came closest to making a concession when the bill was discussed by MPs.

Many at Westminster believe it will not survive unchanged during the line-by-line consideration of the bill in the Lords which starts tomorrow and continues over the next few weeks.

Ministers are determined not to shift on the point of principle that approval of check-off arrangements by employees would have to be renewed, but they may be forced to make renewal last for longer than three years.

Another point that has concerned employers is the proposed greater freedom for individuals to choose the union they join. The government believes it can defuse criticism over the move by underlining that the measure would not affect single-union deals because the law would not introduce new requirements about recognition of unions.

Cross-party alliances among peers on aspects of the maternity provisions will also test the government's handling of the legislation.

This new set of likely difficulties for ministers in the Lords comes as the government still faces disquiet from Tory peers over its plans for property leasehold laws.

Discussion of the Housing Bill resumes in the House of Lords today. But over the leasehold reform provisions the government can rely on support from Labour and Liberal Democrats to save it from defeat by Tory rebels who want to restrict the new rights for long-leaseholders.

The common ground on some issues between employers and unions over the planned union reforms is a much more serious threat to the Conservative majority in the Lords.

GB United Kingdom, EC P8631 Labor Organizations P9121 Legislative Bodies MGMT Management GOVT Draft regulations P8631 P9121 The Financial Times London Page 7 395
Industrial chiefs lead skills drive Publication 930315FT Processed by FT 930315 By LISA WOOD and DAVID GOODHART

A BUSINESS-LED advisory council to bring fresh impetus to transforming the skills of the workforce and to speed up the introduction of National Vocational Qualifications (NVQs), will be announced by the government today.

The National Advisory Council for Education and Training Targets (Nacett) will be chaired by Mr Peter Davis, deputy chairman and chief executive of Reed Elsevier, the magazine publisher. Other members include Mr Dominic Cadbury, chief executive of Cadbury Schweppes, the confectionery and soft drinks manufacturer, and Mr Bill Jordan, president of the AEEU engineering and electrical union.

Five years ago the government authorised NVQs to help improve Britain's poor skills record, but implementation has been slow. Based on an individual's ability to do a task, NVQs stretch from level one (semi-skilled) to level five (higher professional), and provide comparability between different occupations and between vocational and academic qualifications.

The Confederation of British Industry last year led an initiative to set national targets for take-up of NVQs. By 1997 80 per cent of young people should have achieved NVQ2 or its academic equivalent. The figure now is about 50 per cent.

The government endorses these targets but has fought shy of giving them full backing. The establishment of Nacett, with a parallel body in Scotland, indicates that it is becoming more involved.

Most employers pay only lip service to NVQs. Reasons for this include:

The Department of Employment has done little promotion.

Many employers have feared that the government would abandon the reform.

NVQs can be expensive, with accreditation fees in addition to extra training costs. To introduce them for the 30,000 weekly paid staff of J. Sainsbury, the retailer, would cost Pounds 3.2m on certification alone.

Some employers argue that NVQs are too broad, others that they are too narrow. Critics say standards will vary because assessment is done in-house. Some employers fear that workers might demand more pay for attaining NVQs.

Acquisition of the new Investors in People quality standard for in-company training and development is not dependent on a company training to NVQ standards.

Nacett will monitor progress towards the targets, publish an annual report, and advise the government. The council will report to the secretaries of state for education, employment, and Wales. It replaces the National Training Task Force, which was also made up of business leaders.

GB United Kingdom, EC P8331 Job Training and Related Services P9441 Administration of Social and Manpower Programs TECH Standards PEOP Appointments GOVT Government News P8331 P9441 The Financial Times London Page 7 431
Boycott threatens school rankings Publication 930315FT Processed by FT 930315 By JOHN WILLMAN

TEACHERS' boycotts could make it impossible to carry out testing in schools as part of implementing the national curriculum, Mr John Patten, education secretary, has been warned.

Mr David Hart, general secretary of the NAHT, the largest union representing headteachers, has warned Mr Patten in a letter that industrial action against tests threatens the compilation of school performance league tables.

On Friday the NASUWT, the second-largest teachers' union, instructed its members to boycott assessment and testing associated with the government's national curriculum. The NUT, the largest teaching union, will ballot its members in May over plans to boycott just the English tests for 14-year-olds.

Mr Hart said that headteachers could not always be expected to administer the tests if the boycotts occurred.

A boycott would be the first industrial action by teachers over a professional issue, he said, and heads may be unwilling to instruct other teachers to do the work.

In some cases heads may have to cancel tests in one or more subjects, Mr Hart said, if boycotts meant that the results would not 'properly reflect the performance of the school'.

He added: 'This means that the results would not be reported to parents, governors or local education authorities and they would not be forwarded for national collation or publication. A head cannot be expected to insist upon testing taking place where the extent of industrial action would lead to a flawed picture.'

The test results are used in compiling school performance league tables, a central plank of the government's education policy. The government's scope to compel heads to administer tests appears to be limited, according to Mr Hart.

Teachers could do more to use test results to plan their work, according to the Ofsted, the schools inspectorate.

Reviewing progress in implementing the national curriculum, the inspectors say that the results are often ignored by teachers in planning school work. Ofsted says pupils' strengths and weaknesses as revealed in tests should be used to prepare work which reflects their differing abilities.

GB United Kingdom, EC P8211 Elementary and Secondary Schools P9411 Administration of Educational Programs PEOP Labour TECH Standards GOVT Government News P8211 P9411 The Financial Times London Page 7 374
Fears grow for charities as cash crisis worsens Publication 930315FT Processed by FT 930315 By ANDREW JACK

CHARITIES are stretched to their financial limits and face a growing funding crisis, says a survey published today.

The Top 1,000 charities guide published by Hemmington Scott is the first attempt to compare financial information across so many voluntary organisations. It shows that most are struggling to match expenditure by income.

Expenditure was found to be growing faster than income, with 97 per cent of income spent in the most recent financial year compared with 95 per cent in the previous year. Net asset cover dropped sharply.

Total assets of the charities are more than Pounds 20bn. But most charities cannot rely on assets for future income - most assets are concentrated in a few charities.

The study includes 1,365 charities that are ranked in the top 1,000 by one or more of the categories of income, expenditure or assets. It is based on the most recent annual reports.

The wealthiest charity, the Wellcome Trust, has Pounds 5.1bn in funds, while the top five alone account for nearly half of all the assets held by the leading 1,000.

'There are tremendous demands on charities which are not going to be met by increased income,' said Mr Peter Scott, the guide's compiler. 'They have stretched things as far as they can. There is going to be a real problem.'

Auditors to eight of the charities expressed doubts in the accounts about their continued survival, including the London Zoological Society, the Royal Opera House at Covent Garden, and the Aldeburgh Foundation music charity.

The highest contribution of money or resources to charities among quoted companies came from BP, with Pounds 28.1m, followed by British Telecommunications, British Gas and National Westminster Bank. More than 670 quoted companies gave no money in their most recent financial year.

The survey revalued assets shown in charities' accounts by Pounds 7.7bn to bring them into line with market prices. That is still a substantial under-estimate because many values cannot be readily determined.

A quarter of the top 1,000 charities derived some income from trading operations, but 21 made a loss on these activities, including the British Red Cross Society and the Marie Curie Foundation.

Oxfam spent more than any other charity on publicity and fundraising - Pounds 12m in 1992 - followed by Barnado's, Save the Children Fund and Help the Aged. Average spending on fundraising was 10 per cent of voluntary income generated.

Mr Scott stressed that most charities were efficiently run.

The analysis highlighted a tremendous diversity of accounting practices. For example, many charities put figures in their reserves rather than showing them in the profit and loss account.

That is an issue which will be addressed on Thursday when the Charity Commission publishes a new draft statement on accounting practice.

The Henderson Top 1,000 charities. Hemmington Scott, City Innovation Centre, 26/31 Whiskin Street, London EC1R 0BP. Pounds 75.

------------------------------------------------------------------------ WHAT BRITAIN'S TOP 50 CHARITIES GET AND WHAT THEY SPEND ------------------------------------------------------------------------ Funds Income Expenditure (Pds m) ------------------------------------------------------------------------ 1 Wellcome Trust 5,112 90.90 89.70 2 Church Commissioners for England 2,363 244.00 286.00 3 Weston (Garfield) Foundation 994 11.00 10.00 4 Leverhulme Trust 405 12.30 11.8 5 National Trust 320 115.00 109.00 ------------------------------------------------------------------------ 6 Baring Foundation 283 13.10 8.59 7 Henry Smith's (Kensington Estates) 282 12.00 19.30 8 Wolfson Foundation 202 11.80 8.88 9 Gatsby Charitable Foundation 199 10.40 11.90 10 Barnardo's 166 71.70 64.20 ------------------------------------------------------------------------ 11 Guide Dogs for the Blind Association 157 34.00 25.90 12 Joseph Rowntree Foundation 142 22.90 20.50 13 Esmee Fairbairn Charitable Trust 137 6.95 5.87 14 Rank Foundation 119 6.03 6.27 15 Tudor Trust 119 22.2 21.2 ------------------------------------------------------------------------ 16 Royal National Lifeboat Institution 118 51.70 43.20 17 Christ's Hospital 116 13.00 8.03 18 Nuffield Foundation & Commonwealth Trust 114 6.30 6.32 19 Salvation Army Trust 114 33.80 63.00 20 Imperial Cancer Research Fund 96.3 51.20 57.50 ------------------------------------------------------------------------ 21 Rhodes Trust 90.2 6.41 5.05 22 Royal Botanic Gardens, Kew 89.5 18.60 18.00 23 Nuffield Nursing Homes Trust 84.0 102.00 93.70 24 Joseph Rowntree Charitable Trust 77.6 3.78 3.91 25 RSPCA 75.8 30.80 28.40 ------------------------------------------------------------------------ 26 Monument Trust 74.6 3.55 7.37 27 British Heart Foundation 74.4 31.40 20.60 28 Royal National Institute for the Blind 73.0 46.00 43.60 29 Royal Air Force Benevolent Fund 72.7 16.60 10.10 30 D'Oyly Carte Charitable Trust 71.9 0.14 0.16 ------------------------------------------------------------------------ 31 RUKBA 70.6 8.14 6.67 32 National Children's Home 70.3 41.30 43.40 33 Royal Opera House Covent Garden 70.0 48.80 50.20 34 JW Laing Trust 69.0 5.93 5.34 35 Museums & Galleries on Merseyside 67.5 12.70 14.20 ------------------------------------------------------------------------ 36 Masonic Trust for Girls & Boys 65.0 8.00 8.00 37 Leonard Cheshire Foundation 63.6 44.60 40.00 38 Salvation Army Social Work Trust 63.1 33.20 31.70 39 St Dunstan's 60.4 6.63 10.30 40 Henry Moore Foundation 59.9 12.50 13.20 ------------------------------------------------------------------------ 41 Thalidomide Children's Trust 58.2 5.59 5.47 42 Save the Children Fund 56.2 99.60 93.30 43 Royal Masonic Benevolent Institution 55.8 14.60 11.90 44 Sir Jules Thorn Charitable Trust 55.1 3.82 3.61 45 National Museum of Wales 54.2 10.30 10.10 ------------------------------------------------------------------------ 46 Paul Hamlyn Foundation 53.0 4.19 0.89 47 National Trust for Scotland 52.8 14.10 11.70 48 Alleyn's College of God's Gift Dulwich 50.5 1.54 1.07 49 Mayfair Charities 50.4 5.87 2.01 50 29th May 1961 Charitable Trust 48.5 3.63 3.70 ------------------------------------------------------------------------ Figures based on the most recent annual reports available ------------------------------------------------------------------------ Source: The Henderson Top 1,000 Charities ------------------------------------------------------------------------

------------------------------------------------------------------------ ASSETS OF THE TOP 1,000 CHARITIES ------------------------------------------------------------------------ Nov 1991 Nov 1990 (Pounds m) (Pounds m) ------------------------------------------------------------------------ Land, buildings 3,817 3,754 Other fixed 264 230 Investments 14,770 11,611 Stocks, debtors 560 555 Cash, deposits 2,048 2,225 -------- -------- 21,459 18,375 Creditors -806 -681 Borrowings -631 -744 -------- -------- Net assets 22,022 16,950 ------------------------------------------------------------------------

GB United Kingdom, EC P6732 Educational, Religious, etc Trusts MGMT Management FIN Company Finance P6732 The Financial Times London Page 7 980
Leaked report embarrasses Heseltine Publication 930315FT Processed by FT 930315 By JIMMY BURNS

MR MICHAEL HESELTINE, trade and industry secretary, yesterday found himself trying to contain the political fall-out from a leaked report written by his department that shows a depressing outlook for manufacturing industry.

The confidential report, prepared as a background paper for Mr Heseltine by the DTI's industrial competitiveness unit, was leaked to The Sunday Times newspaper.

The report underlines the structural problems faced by industry and the uphill struggle needed to bring about an export-led recovery. The paper concludes that UK industry is beset by weak management and products and underinvestment in new technology.

Mr Heseltine, speaking on BBC radio yesterday, appeared to play down the accuracy of the report while at the same time confirming its authenticity and partially agreeing with some of its conclusions.

'Of course it is a leak and it gives a very superficial impression,' he said.

Mr Heseltine defended the government's record over the past 10 years in the creation of small businesses, privatisation and industrial relations.

But asked whether he agreed with the report's main findings that Britain's product base was weak and deteriorating and that any adjustment would take many years, Mr Heseltine said: 'I do accept that.' He added: 'This is a long-term process and this is what makes it so difficult in PR terms.'

Earlier Mr Robin Cook, Labour's trade and industry spokesman, called on the government to publish the leaked report in full.

He told the party's Scottish conference: 'There are now only 4.5m people working in manufacturing industry in Britain. If present trends continue this government will achieve a new economic first . . . we will have fewer people at work making things than we will have really out of work making nothing.'

During his interview Mr Heseltine would not be drawn on whether the government would publish the full report.

He said: 'If we feel there is a case for making aspects of it available we will. But we are not simply prepared to provide a propaganda exercise for our international competitors to pick up bits and pieces and say 'look, the British themselves feel this is not their strongest point'.'

GB United Kingdom, EC P9611 Administration of General Economic Programs GOVT Government News P9611 The Financial Times London Page 6 386
Two options for Channel tunnel rail link Publication 930315FT Processed by FT 930315 By RICHARD TOMKINS, Transport Correspondent

THE GOVERNMENT is days away from announcing two possible routes to central London for the planned high-speed rail line linking the capital with the Channel tunnel.

It is also expected to announce in the Budget tomorrow that the Pounds 2.5bn project will be a candidate for joint financing by the public and private sectors under new guidelines drawn up by the Treasury.

The more controversial approach to central London would follow the route of British Rail's North London Line from Stratford to Dalston Kingsland in east London but run under the track in a tunnel. It would then surface to join the existing four-track North London Line through Canonbury, Islington and Barnsbury.

After passing through Caledonian Road and Barnsbury station, trains would run south at a new junction and run into St Pancras station, where there is said to be enough room for an international terminal.

The less controversial alternative route would go through a tunnel all the way from Stratford, ending at a new underground terminal beneath King's Cross station, which is next to St Pancras.

The government has been forced to publish two alternative proposals because of a behind-the-scenes row over where the London terminus should be.

Union Railways, the BR subsidiary in charge of the project, favours the St Pancras option because it is much cheaper than the King's Cross one. It fears that a more expensive project will not go ahead.

British Railways Board, however, is fighting to preserve the King's Cross option because construction of an underground terminal forms part of its ambitious plans for a Pounds 1.4bn upgrade of the InterCity and suburban railway interchange at the station.

Mr John MacGregor, transport secretary, is believed to favour the Union Railways plan, but British Railways Board has refused to abandon its position. Rather than continue the argument, Mr MacGregor has decided to put both options to public consultation.

The Union Railways option is likely to worry north London residents near the overground sections of the route because the link will carry high-speed commuter trains from Kent into central London as well as trains running between London, Paris and Brussels.

Union Railways believes the line could be open by 2000 provided legislation is introduced this autumn and the funds are available.

The government had hoped that the private sector would finance the scheme using revenues from train operators and property profits from the development of adjacent land. However, the depressed state of the property market means a contribution from the public sector is likely to be needed if the project is to go ahead.

Union Railways British Railways Board GB United Kingdom, EC P4011 Railroads, Line-Haul Operating P9621 Regulation, Administration of Transportation P1629 Heavy Construction, NEC GOVT Government News RES Facilities P4011 P9621 P1629 The Financial Times London Page 6 482
Days off sick cost employers Pounds 13bn a year Publication 930315FT Processed by FT 930315 By LISA WOOD, Labour Staff

ABSENTEEISM because of sickness is costing employers Pounds 13bn a year, says a survey published today by the Confederation of British Industry.

The survey shows that the average worker is absent from work for eight days in the year because of sick-ness.

Workers in the National Health Service and local government took the most time off. In those two sectors absenteeism was 41 per cent higher than the national average.

Percom, the personnel software company that carried out the survey, suggested that the result may have been caused by private companies monitoring and controlling absence from work more effectively than the public sector.

The differences in absenteeism could also be related to the composition of work forces, with the public sector employing large numbers of blue-collar workers.

According to the survey, full-time blue-collar workers in both manufacturing and service sectors had almost double the level of absenteeism of white-collar workers.

However, absence rates through sickness are falling. Mr Robbie Gilbert, the CBI's director of employment, said: 'Sickness absence overall fell sharply last year by almost 0.5 per cent of working time from the 1991 figure of 4 per cent. This compares with the 1987 figure of 3.6 per cent, which rose to 3.9 per cent for both 1989 and 1990.'

Most companies used computers to keep track of staff absences, with 94 per cent having notification procedures; 83 per cent enforced disciplinary procedures; and 82 per cent operated recruitment checks to eliminate work-shy candidates.

GB United Kingdom, EC P99 Nonclassifiable Establishments MGMT Management P99 The Financial Times London Page 6 279
Scottish attack on economic policy Publication 930315FT Processed by FT 930315

THREE QUARTERS of Scotland's top companies believe the government has no effective economic policy, a poll commissioned by accountancy firm Pannell Kerr Forster and BBC Scotland has found. The same proportion believe Mr Norman Lamont should not continue as chancellor.

Half of the chief executives polled were optimistic about their companies' prospects, while only 35 per cent voiced concern.

GB United Kingdom, EC P9611 Administration of General Economic Programs GOVT Government News P9611 The Financial Times London Page 6 89
National Savings brings in net Pounds 49m Publication 930315FT Processed by FT 930315

GROSS sales of National Savings products last month were Pounds 546m but, after repayments of Pounds 497m, net receipts totalled Pounds 49m.

Including accrued interest of Pounds 113m, the contribution to government funding in February came to Pounds 162m.

GB United Kingdom, EC P6035 Federal Savings Institutions MKTS Sales P6035 The Financial Times London Page 6 68
Customs climbdown over curb to VAT concession Publication 930315FT Processed by FT 930315 By ANDREW JACK

CUSTOMS and Excise has backed down over its plans to restrict from next month the value added tax that holding companies can reclaim.

The decision to defer the move follows intensive lobbying by business and professional groups, and could cost the Treasury up to Pounds 100m in lost revenues.

Customs is expected to announce today that it will delay implementation of its policy at least until October 1 to allow further consultation.

It is still unclear whether it will modify the policy or use the extra time to allow companies to prepare for the change.

Mr Norman Lamont, the chancellor, approved the delay on Friday.

Customs originally issued a statement last October declaring that holding companies owning operating subsidiaries would no longer be entitled to recover VAT incurred on their 'basic business activities' such as professionals' fees.

It was based on an interpretation of the implications of a ruling by the European Court of Justice on a holding company called Polysar.

After strong opposition caused by concern over the costs and the speed of implementation, it initially deferred the starting date until April.

Pressure came from groups including the Confederation of British Industry, and legal action was threatened by a consortium of businesses led by accountants Coopers & Lybrand. Mr John Arnold, a tax partner with Coopers, said: 'This is a victory for British business and shows that Customs listens.'

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy P6719 Holding Companies, NEC GOVT Taxes P9311 P6719 The Financial Times London Page 6 269
Farmers fearful of a ministerial sea change: Coastline policy that could lead to loss of land Publication 930315FT Processed by FT 930315 By GILLIAN TETT

THE tides which threatened coastal fields this week added to a concern which will not recede so quickly.

Some farmers fear their land could be abandoned to the sea following a review by the Ministry of Agriculture which called for a more 'environmental' policy to protect the coastline. At stake are the sea walls and other shore defences which protect more than 1,250km of the coast - mostly around East Anglia, which is particularly vulnerable to flooding as the coastline is gradually sinking into the sea.

More than 1,000km of these defences are maintained by the National Rivers Authority or local authorities, with financial support from the Ministry of Agriculture. In Essex alone, 36,053 acres of low-lying farmland are protected in this way.

But a statement by Mr John Gummer, the agriculture minister, that 'in some areas setting back the line of defence might be the most effective coastal defence option' suggests the ministry may abandon some of the more isolated - and expensive - stretches of sea wall.

The ministry insists that the proposal stems from a desire for a more 'environmentally sensitive' policy, using natural defences instead of walls and buffers, and operating programmes of 'managed retreat'. An experiment of letting farmland revert to salt marshes is under way in Essex.

'We are looking at each area on a case-by-case basis,' the ministry said. It insisted that most farmland and all residential areas would be protected.

In the 1992-93 financial year the rivers authority spent Pounds 250m on flood defences - Pounds 20m more than the previous year. Some small sea defences cost more to maintain than the land behind them was worth.

Mr Mark Dixon, an environmental specialist at the authority, said: 'This is not perceived to be good value for the taxpayer.' He pointed out that in part of East Anglia about Pounds 650 a year was spent protecting each acre of farmland - almost a third of the value of the land.

The proposals have been welcomed by environmentalists, but have provoked an angry response from farmers.

Mr Brian McLaughlin, head of the National Farmers' Union land use department, said: 'We are not wanting to adopt a 'King Canute' approach but we do not think the government's proposals have been adequately researched.' The union is demanding compensation for farmers if sea defences are abandoned.

Mr McLaughlin said that if a field was flooded, neighbouring land was also affected by salt. He added: 'If you remove protection for land you undermine the value of the farmers' main asset in the eyes of the bank.'

GB United Kingdom, EC P9511 Air, Water, and Solid Waste Management RES Natural resources GOVT Government spending P9511 The Financial Times London Page 6 476
Truck and van sales fall 7.5% Publication 930315FT Processed by FT 930315 By JOHN GRIFFITHS

REGISTRATIONS of new commercial vehicles fell by 7.49 per cent last month, compared with February last year, figures from the Society of Motor Manufacturers and Traders show.

The rapid plunge of Leyland Daf from leadership of the truck market in the wake of its collapse is also highlighted. Its rivals, led by Iveco Ford, have moved swiftly to capitalise on the market opportunities presented by the halt in Leyland Daf truck and van production last month.

The receivers have restored production at both the Leyland truck plant and the Birmingham van plant, with separate management buy-outs of each now under discussion. However, the collapse meant that last month Leyland Daf's truck sales fell by more than a third, to 373 from 584 in February last year.

The Fiat-controlled Iveco group, which includes Iveco Ford, small UK truckmaker Seddon Atkinson and imports of Iveco-built trucks from the continent, saw its truck registrations leap last month by 54.7 per cent to 874 against February last year. Sharp rises were also recorded by Mercedes, up 20 per cent, Volvo (23 per cent) and Scania (20 per cent). The intensified market struggle has, however, left ERF, the UK's last publicly quoted independent heavy truckmaker, caught in the crossfire. Its registrations were down by a third to 65.

In spite of the big changes in individual company sales, total sales of trucks - vehicles of 3.5 tonnes and over - were only 3.7 per cent higher last month at 2,585. This gives substance to concern about a slower-than-hoped recovery from the worst commercial vehicle recession since the second world war.

Indeed, registrations of heavy trucks over 15 tonnes - the mainstay of the UK's haulage industry and a good barometer of economic activity - are running so far this year at nearly 2 per cent below the levels of a year ago.

The contrast between the 7.5 per cent drop in total commercial vehicles registrations, to 15,085 from 16,307 in February last year, and the 16 per cent rise in car registrations is a sharp one. However, some industry analysts believe that around six percentage points of the car rise may be accounted for by dealers or manufacturers registering cars for which there are, as yet, no final buyers in an effort to boost apparent market share and to keep assembly lines busy.

------------------------------------------------------------------------ UK COMMERCIAL VEHICLE REGISTRATIONS JANUARY-FEBRUARY 1993 ------------------------------------------------------------------------ Volume Volume Share (%) Share (%) (Units)*** Change (%)**** Jan-Feb 93 Jan-Feb 92 ------------------------------------------------------------------------ Total Market* 32,503 -1.46 100.00 100.00 Imports 12,965 +8.77 39.89 36.14 Small vans (up to 1.8 tonnes) Total 11,998 +9.37 100.00 100.00 Imports 4,378 +96.94 36.49 20.26 Ford 5,624 +32.14 46.87 38.80 Vauxhall (GM) 4,265 +10.49 35.55 35.19 Peugeot (incl. Citroen) 584 -19.00 4.87 6.57 Rover (British Aerospace) 519 -43.34 4.33 8.35 Renault 475 -10.21 3.96 4.82 Medium Vans (1.81-3.5 tonnes) Total 12,657 -8.06 100.00 100.00 Imports 4,854 -11.21 38.35 39.71 Ford 6,678 +8.98 52.76 44.51 Leyland Daf 1,055 -50.84 8.34 15.59 Volkswagen 907 -4.92 7.17 6.93 Renault ***** 719 -13.79 5.68 6.06 Vauxhall (GM) 690 +10.75 5.45 4.53 Peugeot (incl. Citroen & Talbot) 634 -1.71 5.01 4.69 Mercedes-Benz (Daimler-Benz) 472 -22.88 3.73 4.45 Nissan 427 -14.43 3.37 3.62 Trucks (over 3.5 tonnes) Total 4,928 +5.75 100.00 100.00 Imports 2,266 +15.85 45.98 41.97 Iveco group** (Fiat) 1,289 +26.87 26.16 21.80 Leyland Daf 968 -7.63 19.64 22.49 Mercedes-Benz (Daimler-Benz) 954 +13.98 19.36 17.96 Volvo ***** 565 +2.36 11.47 11.85 MAN 237 +30.22 4.81 4.38 Renault ***** 166 -19.81 3.37 4.44 Of which Heavy Trucks (over 15 tonnes) Total 2,475 -1.98 100.00 100.00 Volvo ***** 498 +8.26 20.12 18.22 Scania (Investor) 396 +35.62 16.00 11.56 Leyland Daf 395 -15.96 15.96 18.61 Mercedes-Benz (Daimler-Benz) 379 -1.04 15.31 15.17 Iveco group** (Fiat) 303 -5.61 12.24 12.71 ERF 155 -39.69 6.26 10.18 ------------------------------------------------------------------------ * includes buses and light four-wheel-drive utility vehicles. ** includes Iveco Ford and Seddon Atkinson. *** Total for January and February **** on same period last year ***** Renault and Volvo are linked through minority cross-shareholdings. ------------------------------------------------------------------------ Source: Society of Motor Manufacturers and Traders and industry estimates. ------------------------------------------------------------------------

Leyland DAF Mercedes Benz Iveco Fiat Volvo Truck Scania Great Britain ERF Holdings GB United Kingdom, EC P3711 Motor Vehicles and Car Bodies MKTS Sales CMMT Comment & Analysis P3711 The Financial Times London Page 6 727
BBC management board backs Birt Publication 930315FT Processed by FT 930315 By NEIL BUCKLEY

SENIOR managers at the BBC today rally to the defence of Mr John Birt, the director-general at the centre of a row about his tax arrangements, saying he has their 'unanimous support'.

In a letter to The Times newspaper today, the 10 members of the BBC's board of management, responsible for the day-to-day running of the corporation, say the controversy surrounding Mr Birt has obscured the most important issue in broadcasting - the need for the BBC to have a clear vision in order to safeguard its future after its charter expires in 1996.

'In January John Birt laid out that vision of a wide range of high-quality programmes, greater efficiency and accountability with value for money for licence payers,' the letter says.

The letter adds: 'We . . . believe that John Birt is the best person to lead the BBC and he has our unanimous support.'

The letter may strengthen Mr Birt's position ahead of Thursday's meeting of the BBC'S 12-strong board of governors which is expected to hear calls for his resignation.

Mr Will Wyatt, managing director of network television, yesterday admitted in a BBC radio interview that both Mr Birt and the corporation had been damaged by the revelation that he had been paid through a private company, John Birt Productions. But Mr Wyatt insisted that Mr Birt should not lose his job.

'He's clearly been damaged by it, John knows he's been damaged by it and . . . he'll need the help of his colleagues, which he will get, to get over it. But we believe it is get-overable.'

Mr Wyatt said he did not believe there was a conspiracy against Mr Birt, but suggested that 'factions who would like to stop change in the BBC' might be under the impression they could do so by destabil-ising the director-general.

Mr Wyatt's comments followed calls by several Sunday newspapers for the resignation of Mr Birt, and of Mr Marmaduke Hussey, the BBC chairman who approved his financial arrangements.

Mr Hussey last week vigorously defended Mr Birt. It later emerged that several BBC governors had not given their support to his statement, and some had not known of the director-general's status as a freelance consultant.

British Broadcasting Corp GB United Kingdom, EC P4833 Television Broadcasting Stations P4832 Radio Broadcasting Stations PEOP Personnel News Birt, J General Director British Broadcasting Corp P4833 P4832 The Financial Times London Page 6 417
Buy-out plans for two Daf operations Publication 930315FT Processed by FT 930315 By JOHN GRIFFITHS

MANAGEMENT buy-out proposals are being prepared for two further operations within Leyland Daf, the truck and van maker in administrative receivership.

Mr Arthur Zammit, managing director of Daf International, based at Eindhoven in the Netherlands, is leading a UK-based team seeking to take control of Leyland Daf's truck assembly and distribution activities in Zimbabwe, Zambia, Ghana, Uganda, Tanzania and Malawi.

Managers at Leyland Daf's parts distribution operations at Chorley, Lancashire, are also understood to have begun talks with the receivers on a possible buy-out.

Meanwhile the management team seeking to buy Leyland Daf's vans operation in Birmingham has acquired a non-executive chairman-designate. He is Mr Ned Dawnay, a director of merchant bankers Lazard Brothers, which is 50 per cent owned by Pearson, owner of the Financial Times. Mr Dawnay, a former non-executive director of Rover Group, is understood to have been introduced by former Rover chairman Sir Graham Day.

Leyland DAF GB United Kingdom, EC NL Netherlands, EC P3711 Motor Vehicles and Car Bodies P3713 Truck and Bus Bodies P3714 Motor Vehicle Parts and Accessories COMP Buy-out PEOP Appointments P3711 P3713 P3714 The Financial Times London Page 6 203
Inland Revenue seeks adjudicator for complaints Publication 930315FT Processed by FT 930315 By ANDREW JACK

THE INLAND Revenue has begun its search for candidates for the post of independent revenue adjudicator to deal with complaints from taxpayers.

Job advertisements placed in national newspapers last Saturday said the job would pay Pounds 55,000 a year pro rata, with an initial estimate that the time required would be 20 hours per week.

The candidate will be expected to have extensive business experience or involvement in managing a large organisation, but need not have any background in tax issues.

The adjudicator's position was announced last month as part of the department's contribution to the government's Citizen's Charter initiative.

The Revenue hopes to have an adjudicator in place by May to deal with complaints from the beginning of the new tax year.

The job will investigate complaints about the way the Revenue has handled tax affairs, such as excessive delays, errors, discourtesy or the way in which discretion is exercised. It expects to deal with 20 to 50 complaints a week.

There will be a small team of seconded Revenue staff initially to help the adjudicator.

The Revenue said it had no plans to appoint a headhunter to help in the search for candidates.

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy PEOP Appointments P9311 The Financial Times London Page 6 228
Bombay stays calm in the face of horror: The city seems determined to put Friday's outrage behind it Publication 930315FT Processed by FT 930315 By STEFAN WAGSTYL

MR TEG BAHADUR Thapar was serving lunch from his stall outside the Bombay stock exchange on Friday when he was showered with flying glass and broken concrete in one of 13 explosions which rocked the city and left at least 255 people killed and over 1,200 injured.

'I'm lucky to be alive,' he said from his hospital bed. 'Who did this? Who can stop this happening again?'

Across Bombay people were asking themselves the same questions this weekend. They sensed there was an enormous difference from the riots which scarred the city in December and again in January. Those were caused by a traditional mix of crime, political agitation and ancient Hindu-Moslem hatreds stirred by the destruction of the mosque in Ayodhya. The weapons used were mostly primitive - knives, clubs and petrol bottles.

Friday's outrage, by contrast, bears the deadly stamp of high-technology terrorism, complete with Semtex plastic explosive, high-grade timers, efficient organisation and money.

The only comparable previous incident was the assassination in 1991 of Mr Rajiv Gandhi, the former prime minister, by Sri Lanka's Tamil Tiger terrorists.

But that was a single bomb aimed at one man - the explosions in Bombay were designed to terrorise the nation's commercial capital. Bombay accounts for 35 per cent of India's exports. Mr P V Narasimha Rao, the prime minister, described the blasts as an attack on India's economy.

The immediate assumption both at the highest level and in the streets of Bombay was that those responsible must have been foreigners or had foreign help.

But these suggestions were seen in Bombay as a deliberate attempt to deflect attention from the people who in the popular mind are the real suspects - Moslem extremists who might have taken revenge for the riots which hit India after the Ayodhya mosque's destruction and which left 2,000 dead, including 700 in Bombay.

If Moslems are found to have staged the attacks, the Indian authorities will certainly suspect that the operation was supported from a Moslem country, notably Pakistan.

The implications would be vast. Breaking diplomatic relations would be the minimum step Delhi could take on a dangerous road.

Mr Rao chose his words carefully during his visit to Bombay: 'There is a definite possibility that our search may not stop within the country. I do not want to name anybody because it will have ramifications within and outside the country.'

There is no evidence linking the attacks to Moslem extremists, let alone to Pakistan. Even if Moslem groups are found to be responsible for the bombings, they could have been supplied from other Moslem countries. India would still face a diplomatic crisis but hardly on the same scale.

For the moment, such concerns seem remote from the streets on Bombay, where the atmosphere yesterday was calm. Workmen were clearing away rubble at the blast sites, including the blackened stock exchange building.

Bombayites seemed determined to put the outrage behind them. At the Gymkhana Club and dozens of other sports grounds, hundreds of men and boys were playing cricket as they do every Sunday. Others were walking along the seafront by the arch of the Gateway of India.

The stock exchange authorities plan to re-start trading as soon as they can - probably today - using an old trading floor the exchange vacated only last year.

Businessmen estimated the main loss to the city would be the loss of life and injuries and the damage caused to blasted buildings.

They did not expect the same widespread disruption to production as occurred during the riots.

Some of the credit for the limited disruption should go the government and the police for promptly calling paramilitary and regular troops to help patrol sensitive districts. But much more should go to the people of Bombay, who, so far at least, have refused to be goaded into violent protest by the bombers.

IN India, Asia P8661 Religious Organizations P9229 Public Order and Safety, NEC PEOP Personnel News GOVT Government News P8661 P9229 The Financial Times London Page 5 695
Victorious Keating begins big reshuffle Publication 930315FT Processed by FT 930315 By KEVIN BROWN SYDNEY

AUSTRALIA'S Labor prime minister, Mr Paul Keating, yesterday began work on a wide-ranging ministerial reshuffle after unexpectedly retaining power in Saturday's federal election.

With five seats still in doubt late last night, Labor was expected to win an overall majority of at least seven seats in the 147-seat House of Representatives. It had a majority of six in the last parliament.

The victory gives Mr Keating substantial freedom to introduce fresh faces into the ministerial team he inherited after defeating Mr Bob Hawke, the former prime minister, in a 1991 leadership battle.

Mr Bob Hogg, Labor's national secretary, said there was likely to be 'a fair turnover' in the cabinet. However, Mr John Dawkins, the treasurer (finance minister), is expected to retain his post.

The government also signalled during the campaign that it would approve a cut in interest rates soon, unless the Australian dollar failed to maintain its recent recovery.

Mr Dawkins forecast yesterday that economic growth would accelerate from 2.4 per cent to 3-4 per cent by the end of the year, helped by recovery in other developed countries.

Labor's victory followed a late surge of support, not identified by published opinion polls until election day. Labor's private polling also failed to identify the swing.

The main factor was Mr Keating's attacks on the coalition's plans for radical reform of industrial relations and tax, including the introduction of a goods and services tax.

The result was a triumph for Mr Keating, who was one of only a handful of Labor leaders who believed Labor could win in spite of high unemployment and slow economic growth.

'This is the sweetest victory in the world. This is a victory for the true believers; the people who in difficult times kept the faith,' he told supporters at his Sydney headquarters.

Mr John Hewson, the Liberal/ National party coalition leader, announced a review of opposition policies and forecast that the GST plan would be dropped. He said he was sure of 'strong support' in a leadership election to be held shortly.

AU Australia P9121 Legislative Bodies P8651 Political Organizations PEOP Personnel News GOVT Government News P9121 P8651 The Financial Times London Page 5 375
Australian hero sheds villain image: Keating has broken shackles of Labor's mistakes Publication 930315FT Processed by FT 930315 By KEVIN BROWN

AUSTRALIA'S re-elected Labor prime minister, Mr Paul Keating, must feel a little like Superman. For 15 months, since he took over from Mr Bob Hawke, Mr Keating has been shackled by past mistakes. On Saturday, with one bound, he was free.

As treasurer (finance minister) until March 1991, Mr Keating was one of the most unpopular politicians in the country, widely blamed for triggering the 1990-91 recession through mistaken handling of monetary policy.

His image nosedived further after he successfully challenged in December 1991 for the Labor leadership, bringing a premature end to the career of Mr Hawke, Labor's longest serving and most popular leader.

Mr Keating has spent much of his time since then trying to refashion his image by airing a diverse range of emotive issues designed to show that his vision for Australia embraces more than effective economic management.

In the process he has wooed Aborigines with promises of reconciliation with white Australia, nationalists with promises of republicanism and a new flag, and parents with a campaign against television violence.

He has also cleaned up his language, largely eschewing colourful phrases such as 'scumbag' which were well-received by parliamentary colleagues, but notoriously unpopular with voters.

He has been unable, however, to do anything about the level of unemployment, which rose to 11.1 per cent of the workforce or more than 1m people during the campaign.

Until late on Saturday night, there was almost unanimous agreement among opinion pollsters and commentators that the government's economic record would hand a narrow victory to the opposition Liberal/National Party coalition.

But neither the opinion polls nor the pundits had picked up a late swing to Labor as voters heeded repeated warnings by Mr Keating that the opposition's radical taxation and industrial relations policies would lead to chaos.

Much of his campaign was based on the dubious claim that the coalition's proposals for a goods and services tax (GST), similar to the European value added tax, would cause an irreversible change in the Australian way of life.

Mr Keating also scored a significant victory in the last two days of the campaign with an attack on the coalition's plan to deregulate the labour market, which he claimed would open workers to exploitation.

When all the votes are counted, Labor seems likely to achieve a majority of between seven and 17 seats in the 147-seat House of Representatives, compared with six in the last parliament.

Even the bottom end of the range would represent a startling victory against the odds, especially as Labor appears likely to become the first government since 1966 to increase its vote at a general election.

For the coalition, the result is a disaster comparable to the British Labour party's failure to wrest power from the Conservative government in last year's UK election.

Mr John Hewson, leader of the Liberals, the coalition's dominant partner, said he would fight on.

However he said the coalition would drop the GST proposal and establish a wide-ranging policy review, suggesting that the conservatives may take some time to recover their direction.

For Mr Keating, the election was the final act in a two-year transformation from villain to hero. His victory gives Labor a fifth successive term in government and suggests that the party is close to achieving Mr Hawke's vision of it as the natural party of government.

At the least, Mr Keating has far exceeded the expectations of Labor MPs, who made him leader in the hope that he would contain the scale of what most saw as inevitable defeat.

The signs are that Mr Keating intends to take full advantage of the circumstances of his victory, which could make him an unusually powerful Labor prime minister.

The new government's priorities will be to encourage economic recovery and complete the wide-ranging structural reforms begun under Mr Hawke, such as the tariff reduction programme.

AU Australia P9111 Executive Offices PEOP Personnel News GOVT Government News Keating, P Prime Minister Australia P9111 The Financial Times London Page 5 685
LDP godfather on income tax evasion charges Publication 930315FT Processed by FT 930315 By ROBERT THOMSON TOKYO

JAPANESE politicians were wondering last night who would be next to be investigated for tax evasion after Mr Shin Kanemaru, the disgraced godfather of the ruling Liberal Democratic Party, was charged with evading Y118m (Pounds 690,000) in income taxes.

The prosecutors' pursuit of Mr Kanemaru follows public complaints that they treated him with undue lenience for an earlier violation of the Political Funds Contral Law, and there were calls yesterday for an investigation into the finances of other leading politicians.

Mr Kanemaru, 78, faces further charges, as the Y118m arises from fiscal 1987 and it is believed that prosecutors intend to take action against him for alleged evasion in each year up until last year.

Prosecutors also charged Mr Masahisa Haibara, 49, Mr Kanemaru's former aide, with evading Y26m in income tax on undeclared income of at least Y50m in 1987. Mr Haibara also faces further charges, as the first indictments were rushed through to beat a deadline set by the statute of limitations.

The indictments follow raids on Mr Kanemaru's home and office which uncovered cash, debenture certificates and gold bullion worth almost Y7bn, apparently used to maintain his influence as the head of the LDP's largest faction. He faces a maximum of five years' imprisonment and a Y5m fine.

Mr Kiichi Miyazawa, the prime minister, said that the indictments are 'truly regrettable', as 'public distrust for politics is worsening due to consecutive scandals.'

But the LDP is still divided over reforms to political funding legislation, in particular a suggested ban on donations to the support groups which bankroll most politicians.

Most party members apparently agree that there should be tougher controls on funds received by individuals but are reluctant to agree a ban on the funding of these support groups.

JP Japan, Asia P8651 Political Organizations GOVT Taxes GOVT Legal issues PEOP Personnel News P8651 The Financial Times London Page 4 329
Korea central bank gets new governor Publication 930315FT Processed by FT 930315 By JOHN BURTON SEOUL

SOUTH KOREA'S new government has completed its appointment of senior economic officials by naming a new central bank governor.

Mr Kim Myung-ko, the head of the central bank's Office of Bank Supervision, will replace Mr Cho Soon, who was forced to resign at the weekend after serving only a year of his four-year term as the Bank of Korea governor.

Mr Cho repeatedly challenged the government last year, which probably contributed to his departure. He is a strong advocate of financial liberalisation and greater autonomy for the BOK.

His removal reflects the central bank's lack of independence from political interference. The BOK staff held a protest meeting after Mr Cho's resignation was announced.

His main achievement at the BOK was to persuade the government to adopt a tight monetary policy to cool the overheated economy. Inflation slowed to 4.5 per cent last year from 9.3 per cent in 1991.

But he was criticised by business for causing an economic slowdown, leading to a record number of bankruptcies and falling profits.

When the government recently decided to revive growth by cutting key lending rates, Mr Cho at first opposed the step. He relented after the government agreed in return to deregulate most interest rates, a key step in financial liberalisation.

The government is now debating whether more stimulative measures are needed to achieve its target of at least 6 per cent GNP growth this year against 4.5 per cent in 1992.

Mr Kim said his priority as BOK governor would be to stabilise the currency.

KR South Korea, Asia P6011 Federal Reserve Banks P9311 Finance, Taxation, and Monetary Policy PEOP Appointments GOVT Government News Myungko, K Governor Bank of England P6011 P9311 The Financial Times London Page 4 303
International economic indicators: Production and employment Publication 930315FT Processed by FT 930315

------------------------------------------------------------------------ Yearly data for retail sales volume and industrial production plus all data for the vacancy rate indicator are in index form with 1985=100. Quarterly and monthly data for retail sales and industrial production show the percentage change over the corresponding period in the previous year, and are positive unless otherwise stated. The unemployment rate is shown as a percentage of the total labour force. Figures for the composite leading indicator are end-period values. ------------------------------------------------------------------------ UNITED STATES ------------------------------------------------------------------------ Retail Unemp- Vacancy Composite sales Industrial loyment rate leading volume production rate indicator indicator ------------------------------------------------------------------------ 1985 100.0 100.0 7.1 100.0 102.9 1986 105.7 101.0 6.9 98.0 108.1 1987 108.3 105.9 6.1 105.5 109.9 1988 112.3 111.6 5.4 106.1 114.3 1989 115.1 114.5 5.2 99.3 113.1 1990 115.4 115.7 5.4 84.5 109.1 1991 113.4 113.5 6.7 62.0 114.6 1992 115.2 7.3 60.3 118.9 1st qtr. 1992 3.3 1.3 7.1 58.9 116.5 2nd qtr. 1992 1.8 2.0 7.4 60.5 116.1 3rd qtr. 1992 3.2 0.9 7.5 60.1 116.8 4th qtr. 1992 2.0 7.2 61.7 118.9 February 1992 3.9 1.4 7.2 59.0 116.4 March 1.2 2.5 7.2 61.5 116.5 April 2.0 2.5 7.2 59.4 116.5 May 1.7 2.4 7.3 61.3 116.4 June 1.6 1.1 7.6 60.7 116.1 July 2.5 1.2 7.5 59.9 116.3 August 3.3 1.0 7.5 61.2 116.3 September 3.7 0.5 7.4 59.3 116.8 October 5.4 1.2 7.3 60.6 117.1 November 6.5 2.0 7.2 62.4 117.7 December 2.9 7.2 62.3 118.9 January 1993 4.1 61.1 ------------------------------------------------------------------------

JAPAN ------------------------------------------------------------------------ Retail Unemp- Vacancy Composite sales Industrial loyment rate leading volume production rate indicator indicator ------------------------------------------------------------------------ 1985 100.0 100.0 2.6 100.0 96.5 1986 106.5 99.7 2.8 94.3 105.4 1987 113.8 103.1 2.9 108.3 115.4 1988 122.8 112.9 2.5 135.9 122.7 1989 132.8 119.9 2.2 147.0 126.3 1990 142.0 125.3 2.1 149.7 124.3 1991 145.0 128.1 2.1 144.1 123.3 1992 120.2 1st qtr. 1992 -0.8 -4.6 2.0 132.9 123.2 2nd qtr. 1992 -3.5 -6.2 2.1 126.8 122.7 3rd qtr. 1992 -3.8 -6.1 2.2 122.1 123.3 4th qtr. 1992 -7.7 February 1992 2.4 -4.6 2.0 132.5 123.3 March -4.5 -5.6 2.0 130.2 123.2 April -2.8 -6.0 2.0 130.6 123.1 May -1.0 -8.9 2.1 122.0 122.9 June -6.5 -3.8 2.1 127.7 122.7 July -1.0 -6.1 2.2 122.4 122.5 August -4.8 -8.1 2.2 116.0 122.6 September -5.4 -4.1 2.2 128.0 123.3 October -1.8 -6.4 2.3 115.1 123.5 November -8.3 2.3 111.1 123.2 December -8.5 January 1993 -7.6 ------------------------------------------------------------------------

GERMANY ------------------------------------------------------------------------ Retail Unemp- Vacancy Composite sales Industrial loyment rate leading volume production rate indicator indicator ------------------------------------------------------------------------ 1985 100.0 100.0 7.1 100.0 105.1 1986 103.4 102.2 6.4 136.4 104.9 1987 107.4 102.5 6.2 149.4 106.1 1988 110.5 106.2 6.2 164.7 112.2 1989 114.1 111.4 5.6 219.5 115.0 1990 123.5 117.2 4.9 261.0 115.7 1991 130.4 120.8 4.4 269.9 112.9 1992 127.9 118.9 4.8 260.3 107.0 1st qtr. 1992 -2.8 1.2 4.4 277.3 112.9 2nd qtr. 1992 -4.2 -1.3 4.7 271.7 111.7 3rd qtr. 1992 -1.6 -1.6 4.8 260.6 109.1 4th qtr. 1992 1.1 -4.7 5.1 230.6 107.0 February 1992 -2.1 3.3 4.4 280.5 112.9 March -4.8 0.2 4.5 278.9 112.9 April -2.4 -0.2 4.6 275.7 112.5 May -4.1 0.3 4.7 271.7 112.1 June -6.1 -3.8 4.7 268.4 111.7 July -4.1 -2.5 4.8 265.5 111.1 August -1.5 -0.8 4.8 262.3 110.5 September 0.9 -1.4 4.9 253.3 109.1 October -2.1 -3.6 5.0 241.1 108.0 November 0.9 -5.8 5.1 229.8 106.9 December 4.6 -4.6 5.2 220.9 107.0 January 1993 -6.7 212.7 ------------------------------------------------------------------------

FRANCE ------------------------------------------------------------------------ Retail Unemp- Vacancy Composite sales Industrial loyment rate leading volume production rate indicator indicator ------------------------------------------------------------------------ 1985 100.0 100.0 10.2 100.0 102.5 1986 102.4 101.1 10.4 107.2 108.9 1987 104.5 103.1 10.5 117.6 108.3 1988 107.9 107.3 10.0 134.9 114.3 1989 109.6 111.3 9.4 161.1 113.7 1990 110.1 112.9 9.0 166.0 106.2 1991 109.7 113.2 9.6 129.6 107.2 1992 108.9 112.9 10.3 110.2 1st qtr. 1992 -1.2 1.0 10.1 120.3 108.4 2nd qtr. 1992 0.2 0.4 10.3 107.7 107.7 3rd qtr. 1992 -0.2 -0.2 10.3 112.1 106.0 4th qtr. 1992 -1.7 -2.3 10.5 101.7 February 1992 3.3 0.3 10.2 119.5 108.2 March -6.9 2.7 10.1 117.8 108.4 April 2.6 1.4 10.3 104.8 108.1 May -0.9 -0.3 10.3 102.7 108.0 June -1.3 -0.1 10.3 115.6 107.7 July -3.5 -0.6 10.3 115.0 107.3 August 0.5 -0.6 10.2 113.3 106.8 September 2.6 0.5 10.3 108.1 106.0 October -1.0 0.4 10.4 105.2 105.3 November -5.7 -3.5 10.5 101.9 105.2 December 1.5 -3.7 10.5 98.2 January 1993 96.9 ------------------------------------------------------------------------

ITALY ------------------------------------------------------------------------ Retail Vacancy Composite sales Industrial rate leading volume production indicator indicator ------------------------------------------------------------------------ 1985 100.0 100.0 9.6 104.1 1986 108.1 104.1 10.5 110.8 1987 113.9 106.8 10.9 113.0 1988 109.8 114.2 10.9 118.0 1989 118.7 118.7 10.9 116.1 1990 115.2 118.0 10.3 112.3 1991 114.4 115.4 9.8 115.2 1992 114.1 -0.3 9.9 114.7 1st qtr. 1992 -0.3 9.9 112.7 2nd qtr. 1992 -1.1 9.9 110.8 3rd qtr. 1992 -2.8 4th qtr. 1992 0.3 na 115.0 February 1992 0.3 na 114.7 March 0.5 na 114.4 April 1.1 na 113.9 May -2.6 na 112.7 June 0.2 na 111.9 July -0.3 na 111.1 August -3.1 na 110.8 September -1.0 na 110.7 October -4.3 na 111.3 November -3.2 na December na ------------------------------------------------------------------------

UNITED KINGDOM ------------------------------------------------------------------------ Retail Unemp- Vacancy Composite sales Industrial loyment rate leading volume production rate indicator indicator ------------------------------------------------------------------------ 1985 100.0 100.0 11.2 100.0 101.8 1986 105.2 102.4 11.2 116.1 105.2 1987 110.7 105.7 10.3 141.2 109.3 1988 117.7 109.5 8.6 144.3 107.4 1989 119.8 109.9 7.1 124.7 105.1 1990 120.4 109.3 6.8 98.1 103.0 1991 119.5 106.1 8.7 66.5 106.8 1992 120.3 105.7 10.0 64.8 111.6 1st qtr. 1992 -0.4 -1.2 9.5 70.9 107.4 2nd qtr. 1992 1.1 -0.2 9.7 68.7 110.1 3rd qtr. 1992 0.8 -0.4 10.2 64.9 109.7 4th qtr. 1992 1.3 0.5 10.5 62.3 111.6 February 1992 1.3 -0.8 9.6 71.0 106.7 March -3.3 -1.6 9.5 71.1 107.4 April 1.1 1.4 9.6 70.3 108.8 May 1.9 0.4 9.7 68.7 109.8 June 0.4 -2.4 9.8 67.1 110.1 July -0.4 -1.4 10.0 68.3 109.4 August 1.3 0.2 10.2 65.7 109.1 September 1.5 0.1 10.3 60.7 109.7 October 1.9 0.8 10.3 59.5 110.7 November 1.0 0.3 10.5 61.1 111.4 December 0.9 0.6 10.7 66.1 111.6 January 1993 2.3 63.5 ------------------------------------------------------------------------ All series seasonally adjusted. Statistics for Germany apply only to western Germany. Data supplied by Datastream and WEFA. Retail sales volume: data from national government sources except Japan and Italy (value series deflated by OECD using CPI). Refers to total retail sales except France and Italy (major outlets only) and Japan (department stores only). Industrial production: data from national government sources. Includes mining, manufacturing, gas, electricity and water supply industries except Japan (mining and manufacturing only) and UK (also includes construction industries). Unemployment rate: OECD standardised rate which adjusts as far as possible for the different definitions of unemployment used in official sources. Vacancy rate indicator: relevant vacancy measure divided by total civilian employment, expressed in index form. Derived from OECD series. US - help-wanted advertising, Japan - new vacancies, Germany and France - all jobs vacant, Italy - no data available, UK - unfilled vacancies. Composite leading indicator: OECD data. Each is a combination of series, cyclical fluctuations in which usually precede cyclical fluctuations in general economic activity. ------------------------------------------------------------------------

US United States of America JP Japan, Asia DE Germany, EC FR France, EC IT Italy, EC GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy P9611 Administration of General Economic Programs ECON Employment & unemployment ECON Industrial production STATS Statistics P9311 P9611 The Financial Times London Page 4 1251
Veterans of Long March leave stage Publication 930315FT Processed by FT 930315 By TONY WALKER

THE parliamentary session beginning today marks the end of an era for China's veteran communist leaders who joined the Long March to safe bases in northern China in 1934 to 'live to fight another day', writes Tony Walker.

It will be the first time since the founding of the People's Republic in October 1949 that Long March veterans will be absent from top-ranking state posts, including the presidency, premiership and chairman of the Central Military Commission.

The official Beijing Review reported that 'veteran revolutionaries' President Yang Shangkun and Mr Wan Li, chairman of the National People's Congress, intended to retire. Mr Wan made a farewell appearance yesterday at the Congress presidium, which prepares parliamentary sessions. The Beijing Review said that Mr Yang, 86, and Mr Wan, 77, were making way for 'young blood'.

CN China, Asia P9121 Legislative Bodies GOVT Government News P9121 The Financial Times London Page 4 163
Congress looks to Deng's reformist legacy: China's rubber-stamp parliament is meeting at a significant time Publication 930315FT Processed by FT 930315 By TONY WALKER

WHEN delegates of the rubber-stamp Chinese parliament convene today, the event will be of more than its usual significance. It may well be their last chance further to strengthen legislative support for the reformist legacy of maximum leader Deng Xiaoping.

About 3,000 delegates to the National People's Congress, theoretically representing a quarter of mankind, will be asked to endorse a revised constitution to enshrine economic reforms and to approve personnel changes designed to ensure that Mr Deng's work will be carried on after his death.

As China prepares for transition - Mr Deng is 83 and has aged noticeably in the past year - formal events like the Congress assume special importance; they provide an opportunity for the dominant faction to strengthen its grip through new appointments and constitutional reform.

Congresses run for five-year terms, meeting annually. The timing of this eighth Congress, marking a new cycle, is perhaps fortuitous. It coincides with accelerated efforts to prepare for an orderly passage to a post-Deng regime, although personal ambition and ideological differences make the likelihood of such a smooth transfer problematical.

Much emphasis in these next two weeks will be given to strengthening the underpinnings for the collective leadership to rule after Mr Deng goes to 'meet Karl Marx', words he sometimes uses to refer euphemistically to his death.

Thus, the consensus figure of Mr Jiang Zemin, party boss, is expected to assume the dual role of president, or head of state: Mr Li Peng, the premier, who is identified with the conservative faction, will be 'elected' to a second five-year term; reformist economic tsar Mr Zhu Ronji, heir apparent to the premiership, is tipped to be designated 'senior', or executive, vice-premier, to distinguish him from the other four vice-premiers.

In this leadership soup, Mr Deng and his supporters no doubt hope that a reasonable balance will have been achieved between various trends, ranging from the cautious Mr Li to the adventurous Mr Zhu.

Mr Jiang, referred to in the official press as the 'core' leader, is expected to mediate between competing trends, a role Mr Deng, with his immense authority, has been performing since his re-emergence from political disgrace in the late 1970s.

It is a moot point whether the 67-year-old Mr Jiang, who has no reputation for banging heads together, is capable of mediating effectively. But his elevation to the presidency is obviously designed to increase his authority and reflects concerns about the fairly urgent need to find someone capable of settling disputes among squabbling officials in the post-Deng period.

The promotion of Mr Jiang, to go with the general secretaryship of the Communist party, marks something of a step away from an earlier commitment to separate, where possible, functions of party and state. In fact, this Congress will be marked by a strengthening of the party's hand in state business, a sign that it is determined to retain both symbolic and actual control in a period of accelerated economic reform.

The other main task of the Congress, apart from endorsing revised economic growth targets for the coming year, is to approve a re-drafted constitution (a fifth version in China's post-1949 history) to incorporate China's commitment to a 'socialist market economy', or, in Mr Deng's words, 'socialism with Chinese characteristics'. Both these phrases appear in the draft and reflect key resolutions adopted by the 14th Communist party Congress last October, which gave the party's somewhat belated formal blessing to the move away from rigid central economic control that had been under way for some years.

The importance attached to the market, as opposed to planning, in the new draft is indicative of the revolution that has taken place in Chinese thinking. Thus, simple new wording - '(China) practises socialist market economy' - has been substituted for the previous (1982) version, which relegated the role of the market to one quite subsidiary to 'economic planning'.

Much attention will probably focus on Premier Li's 'work report', which will effectively be China's policy blueprint for the coming year. Mr Li has made no secret of his worries about recent high rates of economic growth of more than 12 per cent last year leading to overheating.

The Chinese-language press in Hong Kong has suggested that Mr Li was resisting a four-square endorsement of the Deng faction's insistence on accelerated reform. But, perhaps, he has been obliged to fall into line as a price of holding on to his premiership for another five years. Still, his report seems certain to mention dangers of excessive growth.

This Congress is not expected to produce any surprises. It will be carefully stage-managed. Failure to adhere to the script would almost certainly ensure delegates would not be returning next year.

CN China, Asia P9121 Legislative Bodies P9611 Administration of General Economic Programs PEOP Appointments GOVT Draft regulations P9121 P9611 The Financial Times London Page 4 830
Beijing accuses Britain of 'colonialism': Harsh criticism follows Patten's move on democratic reform in Hong Kong Publication 930315FT Processed by FT 930315 By TONY WALKER BEIJING

CHINA yesterday bitterly attacked Hong Kong Governor Chris Patten's decision to proceed with democratic reform, accusing Britain of returning to a colonialist path.

The harsh criticism seems certain to be reflected in remarks made at the National People's Congress by, among others, Premier Li Peng, who is due to address the opening session of the parliament today.

Using language reminiscent of some of the worst moments in the sometimes turbulent Sino-British relationship, People's Daily, the Communist party newspaper, accused Mr Patten of undermining the Beijing-London accord on Hong Kong's future.

'This is another serious step taken by Patten to break the Sino-British joint declaration,' the paper charged. 'We feel shock and regret at such an act. Through these disputes, more people will see the old-brand colonialists in their true colours.'

British officials in Beijing say they cannot predict where the Hong Kong issue may go from here, although they note that the media attacks conspicuously have not ruled out a continuation of diplomatic contacts.

Hopes were raised earlier this month that the delicate 'talks about talks' involving Britain's ambassador in Beijing and Chinese officials would lead to a resumption of direct discussions on the democratic reform. But these contacts foundered when China adamantly refused to accept the participation of Hong Kong representatives as equal partners in any talks.

The latest Chinese blast seems certain further to rock Hong Kong capital markets. The Hang Seng stock market index fell more than 3 per cent on Friday after Mr Patten announced that he was proceeding with his controversial legislation under which the people of Hong Kong would elect more than half their legislators at a poll due in 1995.

China insists that Mr Patten's plan runs counter to understandings reached with London on the transition to Chinese rule in 1997. Officials in Beijing argue that broad-based elections favoured by Mr Patten would undermine an agreed status quo.

In Hong Kong, the community appears split between reformers urging Mr Patten to proceed with his legislation, gazetted on Friday in preparation for its introduction to the Legislative Council, and an increasingly nervous business community.

The People's Daily editorial mirrors a Chinese Foreign Ministry statement which also expressed 'shock' at Mr Patten's announcement.

Mr Patten defended his decision on Friday to go ahead with the legislation, saying that he was sticking to his principles. 'Nobody should think that being accommodating, being conciliatory, is the same as abandoning your principles,' he said.

However, he left open the possibility of further discussions with China.

CN China, Asia HK Hong Kong, Asia GB United Kingdom, EC P9121 Legislative Bodies P9721 International Affairs GOVT Draft regulations P9121 P9721 The Financial Times London Page 4 470
Behind the public face of the Swedish labour model Publication 930315FT Processed by FT 930315 By EDWARD BALLS

WHILE SWEDEN's unemployment record was the envy of the developed world in the 1980s, at home the popularity of Swedish-style social democracy waned. But the last two years of conservative government have yet to provide an attractive alternative. So far Prime Minister Carl Bildt's attack on the public sector has delivered a deep recession, a rising budget deficit and an increase in unemployment to very un-Swedish proportions. If his minority government loses next week's vote of confidence, forcing a general election in the summer, then the Swedish labour market model may yet be granted a reprieve.

The evidence of the last two decades certainly suggests that voters should think twice before ditching Sweden's labour market institutions. From similar starting points in the early 1970s, Sweden's unemployment rate remained around 3 per cent throughout the 1980s while rates in most other OECD countries soared into double figures. Sweden's average unemployment rate actually fell by 0.2 percentage points between 1968-73 and 1985-90 compared to a rise of 5.1 percentage points in Germany and 5.9 percentage points in the UK.

Yet the conventional explanations for Sweden's success - centralised pay-bargaining and re-training schemes for the unemployed - do not seem satisfactory. Even countries such as Australia, which had relatively successful co-ordinated pay-bargaining systems and thus above average real wage flexibility, suffered a large rise in structural unemployment in the 1980s. And while Sweden's active labour market programmes pushed a quarter to a third of outflows from unemployment into relief work and training, the OECD has not been able to find empirical evidence to suggest that they actually improved the job prospects of participants. In any case, they absorbed on average less than 3 per cent of the labour force in the 1980s.

The missing element in Sweden's success story is public sector employment. Sweden has traditionally had a larger government sector than other European countries, as the chart shows. But while the share of government employment in total employment rose by 2.1 percentage points in Germany between 1974 and 1990, and actually fell marginally in the UK, it rose by 6.9 percentage points in Sweden over the same 16-year period.

Sweden was not alone. Aside from the dramatically small size of Japan's government sector, the striking feature of the chart is the rapid growth of public employment across the Nordic countries, all of which, with the exception of Denmark, maintained very low unemployment rates by European standards in the 1980s. This growth of public sector employment also helps how the Nordic countries were able to avoid the rise in wage inequality that plagued many other developed countries as a result of the declining demand for unskilled labour. The growth in part-time employment among unskilled workers in the UK and US in the 1980s, largely in the private sector, required a large fall relative in the wages of low paid workers. But in Sweden, the burden was borne not by low paid workers but by taxpayers who financed the growth in better-paid public sector jobs. By 1988, total Swedish taxes had risen to 55 per cent of gross domestic product, compared to a European average tax share of 41 per cent.

The choice for Sweden's voters ought now to be relatively clear: a smaller public sector should allow lower marginal and average tax rates but it will also mean European-style unemployment rates. Sweden's wage-bargaining system has again delivered a rapid fall in inflation by international standards but this time Mr Bildt's public sector cuts mean it has been accompanied by a rise in unemployment to more than 7 per cent of the labour force. Yet there is one complication: unemployment benefits in previously low unemployment Sweden are worth 90 per cent of previous earnings, much higher than in other countries. So unless the government is prepared to cut welfare payments while unemployment is still rising, it may find tax cuts hard to deliver, a fact which could simplify the electorate's choice.

SE Sweden, West Europe P9311 Finance, Taxation, and Monetary Policy P9611 Administration of General Economic Programs ECON Employment & unemployment GOVT Government News P9311 P9611 The Financial Times London Page 4 705
Assemblee Nationale, Election '93: Uphill struggle on the stump - David Buchan finds voters in Normandy griping about the EC Publication 930315FT Processed by FT 930315 By DAVID BUCHAN

UNDER normal circumstances, Mr Pascal Lamy, head of Mr Jacques Delors's private office, would have been in Hong Kong this weekend, scaling the heights of international diplomacy. As the European Commission president's 'sherpa', he would have been helping to prepare for the Group of Seven's June summit in Tokyo.

Instead, Mr Lamy was in deepest Normandy, campaigning as the Socialist party candidate in the Eure department's fifth electoral district, but virtually certain to taste defeat in the elections for the French National Assembly next Sunday and on March 28.

Why is he making his first bid for election when the prospects for the Socialists are so bad? 'Precisely because times are so terrible for the Socialists,' says Mr Lamy. When the incumbent Socialist deputy decided not to run, Mr Lamy, who has family roots in the region, was asked to take his place. His quixotic gesture will earn him credit in whatever is left of the Socialist party.

But the candidate readily acknowledges his obvious handicaps. After eight years in Brussels, he is regarded as the outsider Eurocrat running against local politicians.

All Socialist candidates have an uphill struggle in this election, but Mr Lamy is a natural target for complaints about the European Community in general and of the reform of its Common Agriculture Policy (CAP) in particular, in this half-rural constituency which voted 56 per cent against the Maastricht treaty in the referendum last September.

Mr Jean-Claude Asphe, hard-line Gaullist RPR mayor of Vernon and expected to win the parliamentary seat, makes the most of this: 'We need a quick revision of the CAP reform to be able to present a very tough position in the Gatt (farm trade) negotiations with the Americans. These negotiations cannot be left to EC officials, but to elected politicians.'

On Friday, Mr Edouard Balladur, the opposition's favourite candidate to be France's next prime minister, arrived in Vernon to rub in the point in: 'We cannot accept the CAP reform; we cannot accept the set-aside of so much land from production. France is the world's number two agricultural exporter, and there are not so many strong points in our economy that we can afford to ignore any of them.'

The RPR leader goes on to demand 're-nationalisation of part of the CAP, so that all is not decided far from us (in Brussels).'

For a French leader to urge even a partial break-up of the CAP strikes Mr Lamy as nonsense: 'I can imagine John Major (UK prime minister) calling for this but not Mr Balladur, because France has been a major beneficiary of the CAP.' However, he supports Mr Balladur's call for French farmers to get more compensation for price cuts and set-aside requirements.

'There are technical flaws which need correcting,' Mr Lamy says, because the yield of farmers of the Eure, and therefore their claim to compensation for not producing, has been under-estimated by Brussels. In more general terms, Mr Lamy detects a pronounced swing towards protectionism in France. 'France has never had a tradition of economic openness,' he points out in a living-room meeting with Socialist activists at Les Andelys. Protectionism in France is 'like a rheumatic ache - it always gets worse in bad weather', like the country's current recession.

Like most other Socialist candidates, Mr Lamy prefers to find such domestic remedies as work-sharing to reduce France's jobless total, near 3m.

The conservative opposition still has to overcome serious internal divisions if it is to agree on a more aggressive external policy in government. The rift over Maastricht is as evident as ever inside the RPR.

Mr Asphe, among the 70 per cent of the party's rank and file which voted against the treaty, says he is still dead against this form of European union. Yet it was Mr Balladur, as finance minister in 1987, who first proposed a European central bank.

At Vernon on Friday, Mr Balladur smoothly proclaimed there was party consensus that 'France should co-operate very closely with its partners, but remain master of its destiny.' Whether such words can continue to paper over the RPR's cracks may soon be tested in government.

FR France, EC P8651 Political Organizations P9121 Legislative Bodies GOVT Government News P8651 P9121 The Financial Times London Page 3 736
Assemblee Nationale, Election '93: Apathy marks French poll Publication 930315FT Processed by FT 930315 By ALICE RAWSTHORN PARIS

THE conservative opposition alliance is heading for a resounding victory in the French parliamentary elections on Sunday and March 28, but the level of abstention is likely to be a record, according to the final opinion poll of the campaign.

Violence erupted yesterday at a public meeting at Gardanne, near Marseilles, addressed by Mr Jean-Marie Le Pen, head of the far-right National Front. Police had confiscated knives and missiles from NF supporters. Four people were injured when protesters pelted the police with bottles and vegetables.

This was a rare outburst in the French election campaign, which has been notable for a subdued tone. This hints at a high rate of abstentions which an IFOP opinion poll in Journal du Dimanche yesterday reckoned could be 26 per cent - some six points above the norm.

Political pundits this weekend said that the high level of abstentions, with voting intentions having changed little since campaigning began, was indicative of the electorate's apathy. 'Everything suggests the campaign has washed over the electorate like water off a duck's back,' said Liberation newspaper.

The final IFOP poll confirmed these views by suggesting that the conservatives would win 42 per cent of the votes, against 43 per cent in a January sounding, leaving them with more than 400 of the 577 National Assembly seats. The ruling Socialist camp is expected to emerge with 89-109 seats after mustering 20.5 per cent of the votes.

The ecologists, who had been gaining ground in the campaign, have slipped. The poll yesterday suggests they will attract 14.5 per cent of the votes, making them the largest protest grouping, ahead of the NF with 10.5 per cent, and the Communists with 9.5 per cent.

FR France, EC P8651 Political Organizations P9121 Legislative Bodies GOVT Government News P8651 P9121 The Financial Times London Page 3 320
Danes launch drive in support of energy tax Publication 930315FT Processed by FT 930315 By DAVID GARDNER BRUSSELS

THE Danish presidency of the EC is launching an effort to mobilise support for the controversial energy tax put forward by the European Commission last year to combat global warming.

As talks on the tax resume today at an EC finance ministers' meeting in Brussels, Denmark is expected to announce it has scheduled an extraordinary 'jumbo' council of environment and energy ministers of the 12, on April 23 in Luxembourg.

The tax plan, part of a package to meet EC commitments to stabilise carbon dioxide emisions at 1990 levels by 2000, has been sidelined since Brussels adopted it last May, and has been made conditional on the US and Japan taking analogous measures.

The conditionality is to safeguard European industrial competitivity.

The new push comes in the wake of President Bill Clinton's plans to introduce a fuel tax in the US, and growing evidence that the EC cannot meet its emissions targets through more conventional measures.

Before Washington's move last month, Mr Ioannis Paleokrassas, EC environment commissioner, warned that, while Brussels remained committed to the energy tax, its emissions strategy could take a long time to emerge from the EC legislative pipeline.

Since then, the commissioner has been co-operating closely with the Danish presidency and, according to his officials, is now 'talking up' the possibilities of achieving a package including the tax.

If approved by the 12, the tax would start at Dollars 3 a barrel of oil equivalent, rising to Dollars 10 a barrel by 2000. The mixed levy would fall half on the fuel content of all non-renewable energy and half on its carbon content.

It would be offset by tax reductions in other areas, such as social security and corporate tax payments, which its advocates believe could help job-creation.

Spain, however, remains strongly opposed to the tax, arguing that the richer countries which emit most carbon dioxide, and have most resources to spend on energy-saving and clean technology, should be set higher reduction targets.

The Commission is looking at ways to rebalance the tax to shift more of the burden from power generation - the costliest element for the poorer member states - to transport. But the senior Commission official warned, 'you would never get agreement on target-sharing' as demanded by Madrid.

Recent Commission studies on emissions, revealing that the most optimistic forecasts of emissions by the 12 show that the EC would fall far short of its stabilisation target, have added urgency to the debate.

DK Denmark, EC QR European Economic Community (EC) P9511 Air, Water, and Solid Waste Management P9611 Administration of General Economic Programs P9721 International Affairs GOVT Taxes RES Pollution P9511 P9611 P9721 The Financial Times London Page 3 463
More police for Israel Publication 930315FT Processed by FT 930315 By JUDY MALTZ JERUSALEM

THE ISRAELI cabinet yesterday announced measures aimed at tightening security following attacks against civilians and soldiers in the past week, writes Judy Maltz in Jerusalem. Public anxiety over security was exacerbated by the call from Mr Yacov Terner, police chief, for citizens licensed to carry weapons to do so.

The cabinet announced it would increase the number of policemen stationed around the country by 2,000, bolster the civil guard and provide incentives to Israeli employers to hire Jewish rather than Palestinian workers.

IL Israel, Middle East P9221 Police Protection P9711 National Security GOVT Government News P9221 P9711 The Financial Times London Page 3 116
UN general digs in at siege town Publication 930315FT Processed by FT 930315 By REUTER and AP SARAJEVO

GENERAL Philippe Morillon, the French commander of United Nations troops in Bosnia, has vowed to stay in the besieged Moslem town of Srebrenica until a stranded aid convoy arrives, Reuter reports from Sarajevo.

He has set up headquarters in the eastern Bosnia town, which has been under Serb siege for 11 months, said Mr Laurens Jolles of the UN High Commissioner for Refugees, who left Srebrenica yesterday.

The decision by Gen Morillon, who reached the town on Saturday, was warmly endorsed by the French government. Prime Minister Pierre Beregovoy said: 'There are moments when one man can change the course of events.'

The UN aid convoy that had set out for Srebrenica yesterday was turned back by Serb police backed by an armoured car. UN officials said the convoy, carrying 125 tonnes of aid, travelled only 12 miles before being forced back. About 60,000 people in Srebrenica have received no aid by road since December, but the US Air Force dropped supplies by parachute into the area on Saturday night. Thousands of refugees rushed to the hills when they spotted aid palettes brought by parachute and several were reported to have been killed in the scramble for food.

Mr Jolles said that thousands of ragged refugees were crowding the streets of the town because there was no housing: 'There are streams of people coming in. At night, you can see thousands of small fires in the streets with people sitting around them.'

Gen Morillon went to Srebrenica with a small team after Dr Simon Mardel of the World Health Organisation had reported that sick and wounded people there were dying at the rate of 30 a day.

Dr Mardel described yesterday how Moslems in the area were dying in large numbers from starvation or wounds from Serb artillery bombardments. He said in Zagreb, the Croatian capital, that the torment he had witnessed in Srebrenica and nearby Konjevic Polje surpassed his experiences in Ethiopia, Liberia or Afghanistan.

Gen Morillon yesterday told the French TF1 television channel that the arrival of the convoy was 'a matter of life or death'. He urged the US to concentrate its aid effort on Srebrenica.

A third of Bosnia's lawmakers yesterday endorsed a new package of positions on a peace plan presented by President Alija Izetbegovic, AP reports from Sarajevo. Serb forces prevented other deputies from crossing siege lines to attend. Acceptance came after Mr Izetbegovic and about 30 deputies - those from Sarajevo - had discussed the peace plan drafted by negotiators Lord Owen and Mr Cyrus Vance. The legislators prevented from entering Sarajevo will meet today in Zenica.

BA Bosnia-Hercegovina, East Europe P9711 National Security P9721 International Affairs GOVT Government News P9711 P9721 The Financial Times London Page 3 472
West warned of retaliation by Gulf oil ministers Publication 930315FT Processed by FT 930315 By MARK NICHOLSON CAIRO

GULF OIL ministers yesterday expressed angry opposition to proposed energy taxes in Europe and the US, with some threatening economic retaliation if the west proceeds with such levies.

Mr Ali al-Baghli, Kuwaiti oil minister, said Gulf oil producers should raise taxes on imports from the west if energy taxes are introduced.

Mr Youssef Shirawi, his Bahraini counterpart, said Gulf states should retaliate by cutting oil exports and curbing planned increases in production capacity.

The remarks followed a weekend meeting of Gulf Co-operation Council oil ministers in Jeddah, after which ministers issued a statement opposing any rise in taxes on oil by consumer countries. The communique asserted the GCC's 'determination' to safeguard 'the continuation of the flow of their exports without obstacles or restrictions.'

The GCC states - Saudi Arabia, United Arab Emirates, Kuwait, Oman, Bahrain and Qatar - control almost half of global oil reserves.

All but Oman and Bahrain are members of the Organisation of Petroleum-Exporting Countries, which has led a concerted campaign against energy taxes being contemplated by the European Community and the US.

However, oil industry executives in the Gulf were highly sceptical that the GCC statement would move far beyond rhetoric. 'Gulf producers have already invested too much money in increasing oil output for threats of cuts to be taken seriously,' said one. Several pointed out that the Gulf states rely too heavily on the west for military protection to wish to jeopardise relations.

Furthermore, it has long been the strategy of Saudi Arabia, the dominant GCC country and the world's biggest oil exporter, to safeguard the long-term security of oil supplies to the west, and thus the market for its main export.

'Any action to oppose energy taxes is likely to be played out through Opec,' said one Gulf oil executive. 'We all know how successful Opec is at agreeing things.'

XN Middle East QR European Economic Community (EC) US United States of America P1311 Crude Petroleum and Natural Gas P9611 Administration of General Economic Programs P9721 International Affairs GOVT Taxes MKTS Production MKTS Foreign trade P1311 P9611 P9721 The Financial Times London Page 3 367
Israeli government tightens security after many attacks Publication 930315FT Processed by FT 930315 By JUDY MALTZ JERUSALEM

THE ISRAELI cabinet yesterday announced measures aimed at tightening internal security, following a spate of attacks against civilians and soldiers in the past week.

The cabinet convened for its weekly meeting as public anxiety over security was further exacerbated by the police chief's call on all citizens licensed to carry weapons to do so at all times.

Some 230,000 Israeli citizens, including most Jewish male adults in the occupied territories, have gun licences.

Mr Yacov Terner, police chief, made his unprecedented call after a Jewish woman had been hacked to death with an axe in the Gaza Strip and the body of an Israeli soldier, shot dead, was found outside Jerusalem on Friday.

The police chief came under criticism at the cabinet meeting by ministers who said his call to carry arms had provoked hysteria around the country.

To bolster security, the cabinet announced it would increase the number of policemen stationed around the country by 2,000, bolster the civil guard and provide incentives to Israeli employers to hire Jewish rather than Palestinian workers.

The recent spate of attacks against Israeli citizens began after a month-long hiatus following the expulsion of 415 Palestinians on December 17.

After the cabinet meeting, Mr Micha Harish, industry and trade minister, said the defence establishment had been ordered 'to take all legal measures to strengthen the war against terrorism'.

IL Israel, Middle East P9221 Police Protection P9711 National Security GOVT Government News P9221 P9711 The Financial Times London Page 3 262
Germany disrupts the flow of traffic: Cabotage and the EC's single market Publication 930315FT Processed by FT 930315 By RICHARD TOMKINS

AN Italian lorry driver sets off from Milan with a truckload of white goods and delivers them three days later in Edinburgh. Faced with the prospect of driving an empty truck back to the Continent, he would jump at the chance to pick up a load of whisky and deliver it to London on his way. But single market or no single market, he cannot do so under EC rules - unless, that is, he has the necessary permit.

The free movement of goods and services, one of the basic preconditions of the single European market, has a hollow ring about it when it comes to road haulage in the Community. Three months into the new era of supposedly unrestricted trade, hauliers still cannot ply for hire within other countries' borders except under a quota system.

The harmful effects of this lack of accord spread far beyond the haulage industry itself. Up to 20 per cent of lorry mileage in the EC is estimated to be empty running. If more efficient use were made of the vehicle fleet, transport costs would fall and the problems of congestion and pollution could be sharply reduced.

As it is, long-running negotiations over liberalising the haulage regime have become bogged down in an argument between member states over road charges: an argument that will continue today as EC transport ministers meet in an attempt to reach a solution.

Taken by itself, the issue of cabotage - EC jargon for the right to ply for hire in another's territory - might not have proved particularly controversial. Although some member states were concerned about the possible impact on their domestic haulage industries, all would probably have agreed on a gradual transition to a liberalised regime.

Progress was blocked, however, when Germany linked the issue to a much wider debate about whether member states should be allowed to charge other countries' lorries for the use of their roads.

Germany's complaint was that its geographical position at the heart of the EC meant it was bearing by far the heaviest burden of international road traffic. As a result, it needed to invest large sums in roads.

German lorry owners were already contributing towards the cost through heavy annual road taxes, it pointed out. In contrast, vehicles from other countries were not only getting free access to Germany's roads, but in most cases paying much lower annual road taxes in their own countries too.

The solution Germany proposed was to require all lorries using its motorways, whether German or international, to pay an annual fee of up to DM9,000 (Pounds 3,800) for a licence or vignette to be displayed in their windscreens. At the same time the road tax on German lorries would be reduced.

The proposal caused uproar in the EC and was ruled unlawful in 1990 by the European Court on the grounds that it would be discriminatory. But Germany continues to insist that there can be no deal on cabotage without an agreement on road charging, too.

At first sight, the row over the German scheme may appear inexplicable: tolls, after all, are already found on many EC motorways and bridges. But the difference between these tolls and the German road charges is that existing tolls were introduced to pay for specific pieces of transport infrastructure. The German charges, in contrast, were seen as a general tax.

Conceivably, the German plan would have attracted less opprobrium had it not been linked to reductions in the annual road tax for German lorries. But with other countries also looking for new sources of revenue to meet the rising costs of providing transport infrastructure, road charging has now turned into a significant issue in its own right.

Germany apart, several countries - France, Spain, Italy and Britain, for example - favour road charging under certain conditions. Some of the smaller member states, however, are deeply suspicious of the idea on any terms. Among them are countries like Ireland that are dependent on transit through a neighbouring country (in this case, the UK) for access to the rest of the Community.

Others say if every country adopted the German scheme, the consequences could be farcical: drivers crossing the EC would need so many vignettes they would be unable to see through their windscreens.

The smaller member states want to see a uniform system under which everyone needing access to other EC countries' roads would pay the same annual fee, and the money collected would be distributed to EC countries according to how much international traffic they carried. That plan, however, runs into two obstacles: it would look like the imposition of a common tax at EC level, and the allocation of the funds would cause perpetual rows.

Where the debate will end, nobody knows. Ultimately, the ideal would be for lorries to be charged according to whose roads they used, not according to the country they were registered in. But the technology needed to achieve that goal is complex - and the politics, more complex still.

QR European Economic Community (EC) DE Germany, EC P4213 Trucking, Ex Local P9621 Regulation, Administration of Transportation P9721 International Affairs TECH Licences GOVT Taxes P4213 P9621 P9721 The Financial Times London Page 2 889
Cautious US backing for Yeltsin: Clinton unhappy with other countries' response Publication 930315FT Processed by FT 930315 By JUREK MARTIN WASHINGTON

THE Clinton administration has not sought to advise Mr Boris Yeltsin, the Russian president, on how best to handle his current confrontation with the Russian parliament, according to Mr Les Aspin, the US secretary of defence.

Interviewed on television yesterday morning, Mr Aspin reported that Mr Warren Christopher, the secretary of state, had told his opposite number in Moscow, Mr Andrei Kozyrev, on Friday only that the US hoped that whatever course of action Mr Yeltsin chose was 'consistent with reform and human rights'.

President Bill Clinton himself sent a further signal to other industrialised countries on Saturday that more needs to be done financially and economically to help the cause of economic reform in Russia.

He said other nations with a vital stake in the future of Russia had given him what he called 'an inadequate response to date'. He added that 'a more co-ordinated and aggressive approach' was required but did not indicate whether he thought progress had been made at the meeting of Group of Seven and Russian officials in Hong Kong over the weekend.

Asked if he was putting too much faith in Mr Yeltsin, the president responded: 'We will work with what we have to work with, whatever happens. But I think we should support him because he has been elected, after all.

'No-one knows what is going to happen, but the man is an honest democrat, small 'd', and he's passionately committed to reform. I'm going to keep working with him.' Mr Clinton and Mr Yeltsin are due to meet in Vancouver on April 3-4.

He sidestepped questions about Mr Yeltsin's possible recourse to emergency powers, including the use of the Russian military, to circumvent the parliament and pursue reform. 'I don't think it would serve any useful purpose for me to try and interpet the Russian constitution right now,' he said.

Neither Mr Clinton and Mr Aspin minimised the importance of the power struggle in Moscow.

The defence secretary said that arms control agreements, such as Start, co-operation in foreign policy from Bosnia to Iraq, and the proposed reductions in the US defence budget were potentially at risk.

Some senior officials have suggested that the US would not formally object if Mr Yeltsin resorted to special powers, including the suspension of the parliament, but would draw the line at a military crackdown. This seems to be the broad import of Mr Christopher's message to Mr Kozyrev on Friday.

Senator Richard Lugar, the Republican from Indiana, said yesterday that the US could 'conceivably' accept the temporary use of military power, but only if it was invoked as an explicit prelude to proper elections in Russia. He thought an early session between the US and Russian finance ministers would be useful.

Senator Bill Bradley, the Democratic from New Jersey, also said it was important for the US to keep open all lines of communication with other centres of power, including the parliament, the army and the Russian Orthodox Church.

US United States of America RU Russia, East Europe P9111 Executive Offices P9121 Legislative Bodies P9721 International Affairs GOVT Government News P9111 P9121 P9721 The Financial Times London Page 2 544
Russia and Ukraine fail to agree on Soviet debt Publication 930315FT Processed by FT 930315 By CHRYSTIA FREELAND MOSCOW

RUSSIA and Ukraine have failed to reach an agreement on the former Soviet Union's foreign debt. After a meeting led by their prime ministers in Moscow on Friday the two Slav countries appear further apart then ever.

Their failure may jeopardise the recent initiative by G7 leaders to cobble together an aid package to bolster Russian President Boris Yeltsin's beleaguered government.

However, Ukrainian officials claimed a breakthrough on energy prices and supply, saying that, for the first time, Russia had agreed 'in principle' to take into account transit fees for goods imported and exported through Ukraine.

However, the prime ministers' meeting, promoted as the forum at which the escalating economic conflict between the neighbours would be resolved, did not produce a single specific agreement and was overshadowed by the power struggle being waged a few blocks away in the Russian parliament.

Mr Alexander Shokhin, the Russian deputy prime minister, said he would seek a return to a temporary accord according to which Russia would assume the management of the foreign debt but a final resolution of the division of the debts and assets would be postponed.

BAT Industries, the leading British tobacco company, yesterday acquired a majority stake in Ukraine's largest tobacco factories.

The Prylucky tobacco factory, 125km east of Kiev, produces nearly a fifth of Ukraine's total cigarette output and is one of the most coveted prizes in the fierce battle between western tobacco companies for a share in the Ukrainian cigarette industry.

BAT will control 65 per cent of the new A/T BAT- Prylucky Tobacco Company, and the management and workers of the Prylucky plant will initially hold 35 per cent. This is part of a wider trend in the industry to compensate for declining smoking in the west.

BAT Industries A/T BAT Prylucky Tobacco RU Russia, East Europe UA Ukraine, East Europe P9311 Finance, Taxation, and Monetary Policy P2111 Cigarettes GOVT Government News ECON Balance of payments COMP Acquisition P9311 P2111 The Financial Times London Page 2 349
W Europe car sales decline sharply Publication 930315FT Processed by FT 930315 By KEVIN DONE, Motor Industry Correspondent

NEW car sales in west Europe plunged in February by 16.9 per cent, as demand dropped steeply for the second month in succession.

According to industry estimates, new car sales fell in February to 925,000 from 1.1m a year earlier, led by sharp falls in four of the five leading volume markets.

For the first two months of the year new car sales in west Europe have fallen by around 20.6 per cent to 1.88m.

In Germany, the single biggest market in Europe, sales fell in February by an estimated 22.7 per cent to 245,000, compounding the 27.5 per cent decline suffered in January.

New car sales in Italy fell in February by 13.9 per cent year-on-year, while new car registrations in France dropped by 21.5 per cent, and sales in Spain fell by 33 per cent.

The UK, slowly emerging from over three years of recession, has become one of the few markets in Europe to show growth, with a 16.1 per cent rise in registrations in February.

UK sales have been higher than a year earlier in five of the last six months, and have risen by 11 per cent year-on-year in the first two months of 1993, albeit from a depressed level.

Overall, new car sales both in February and in the first two months of 1993 have been lower than a year ago in 14 of 17 markets across west Europe with higher sales only in the UK, Ireland and Norway.

Losses are mounting at several car makers in Europe, as plants are forced on to short-time working and thousands of jobs are eliminated.

Five of the big six volume carmakers in Europe, the Volkswagen group, General Motors, PSA Peugeot-Citroen, Ford and Renault, have suffered a drop in sales of more than a fifth in the first two months of the year.

European motor industry leaders are forecasting a decline in west European new car sales for the full year of 9-15 per cent, after four years in which demand has held steady at close to 13.5m.

In the first two months of the year only Rover, the vehicle subsidiary of British Aerospace, has achieved a small increase in new registrations, supported by its still heavy dependence on its domestic UK market.

Among the leading volume carmakers the Fiat group of Italy, which includes Lancia and Alfa Romeo, has gained ground in market share and has moved into second place, helped by the more moderate fall in demand in Italy than in Germany, France and Spain.

Japanese carmakers' sales in west Europe in the first two months fell by an estimated 16.8 per cent.

------------------------------------------------------------------------ WEST EUROPEAN NEW CAR REGISTRATIONS January-February 1993 ------------------------------------------------------------------------ Volume Volume Share (%) Share (%) (Units) Change(%) Jan-Feb 93 Jan-Feb 92 ------------------------------------------------------------------------ TOTAL MARKET 1,883,000 -20.6 100.0 100.0 MANUFACTURERS: Volkswagen* (incl. 313,000 -21.0 16.6 16.7 Audi, SEAT & Skoda) Fiat (incl. Lancia, 248,000 -14.6 13.2 12.2 Alfa Romeo, Ferrari Innocenti, Maserati) General Motors 230,000 -23.4 12.2 12.7 (Opel/Vauxhall, US***** & Saab) - Opel/Vauxhall 221,000 -23.3 11.8 12.2 - Saab** 6,000 -28.3 0.3 0.4 Peugeot (incl. 229,000 -22.6 12.2 12.5 Citroen) Ford (Europe, 221,000 -20.1 11.7 11.7 US***** & Jaguar) - Ford Europe 219,000 -20.2 11.6 11.6 - Jaguar 2,000 -1.3 0.1 0.1 Renault**** 197,000 -22.0 10.4 10.6 Nissan 64,000 -15.4 3.4 3.2 BMW 62,000 -19.3 3.3 3.2 Rover*** 53,000 +1.8 2.8 2.2 Mercedes-Benz 52,000 -32.0 2.8 3.3 Toyota 49,000 -5.3 2.6 2.2 Mazda 31,000 -29.8 1.6 1.8 Volvo**** 26,000 -30.4 1.4 1.6 Honda*** 21,000 -25.1 1.1 1.2 Mitsubishi 19,000 -20.8 1.0 1.0 Total Japanese 218,000 -16.8 11.6 11.0 MARKETS: Germany 483,000 -25.1 25.7 27.2 Italy 395,000 -13.9 21.0 19.4 United Kingdom 292,000 +11.0 15.5 11.1 France 239,000 -29.7 12.7 14.3 Spain 99,000 -42.7 5.2 7.3 ------------------------------------------------------------------------ * VW holds 31 per cent and management control of Skoda. ** GM holds 50 per cent and management control of Saab Automobile. *** Honda holds a 20 per cent stake in Rover vehicle operations. **** Renault and Volvo are linked through minority cross-shareholdings. ***** Cars imported from US and sold in western Europe. ------------------------------------------------------------------------ Source: industry estimates ------------------------------------------------------------------------

Volkswagen General Motors Corp PSA Peugeot-Citroen Renault Rover Group Fiat XG Europe P3711 Motor Vehicles and Car Bodies P5511 New and Used Car Dealers MKTS Sales MKTS Market shares P3711 P5511 The Financial Times London Page 2 738
British Gas offers to decentralise Publication 930315FT Processed by FT 930315 By DEBORAH HARGREAVES

BRITISH GAS is to propose a compromise to the Monopolies and Mergers Commission to counter radical proposals by its regulator for a full-scale break-up of the company.

British Gas is understood to have proposed splitting its UK gas business into three wholly-owned subsidiaries, covering sales to the industrial market, household supply and pipelines. The company could then disband its central gas purchasing function, leaving its two sales units to buy their own gas from the North Sea.

British Gas submitted itself to an MMC inquiry last August as a way of preserving 15,000 jobs in its gas business. Regulatory demands on the company, including a tough pricing formula, would have forced it to reduce costs by Pounds 400m over five years and it would still have been incurring a loss of Pounds 300m on its household sales business by 1997.

The MMC is due to present its report on April 30 to Ofgas, the industry regulator, and Mr Michael Heseltine, trade and industry secretary.

Two weeks ago Ofgas called for British Gas to be broken up into 12 regional companies, a purchasing arm and a stand-alone pipelines company.

British Gas believes a full break-up could cost as much as Pounds 3bn over 10 years, including Pounds 2bn to provide extra storage.

In addition, the company is understood to be fighting to keep its monopoly over household supply, arguing that removal of the monopoly could compromise safe-ty standards, endanger security of supply and service to disadvantaged customers, and mean the end of uniform gas costs across the country.

British Gas contests claims by competitors that UK households would see substantial savings - 10 per cent a year on gas bills - from the introduction of competition to domestic supply.

The company says that if prices reflected the full cost of supply, some 12m of its customers would pay more and 6m would pay less. Prices for customers using less than 100 therms a year would nearly double.

By splitting up the gas purchasing arm, British Gas would make it easier for independent gas shippers to have more access to North Sea supplies. The company has been the dominant buyer in the North Sea for many years and rival gas marketing companies have complained they could not compete with its purchasing power.

The company is also believed to be discussing the creation of a market in peak gas supplies which would address the problem of opening up the interruptible supply sector to competitors. Interruptible customers are the largest users of gas, paying less in return for being cut off during periods of peak demand in the domestic market. The peak trading market could herald the start of a spot market in gas sales.

Lex, Page 14

British Gas GB United Kingdom, EC P4923 Gas Transmission and Distribution P9631 Regulation, Administration of Utilities COMP Company News P4923 P9631 The Financial Times London Page 1 495
Budget likely to help jobless and small businesses Publication 930315FT Processed by FT 930315 By PETER NORMAN, Economics Editor

THE TREASURY was last night making final preparations for tomorrow's 1993-94 Budget which is expected to increase Britain's tax burden moderately but may also strengthen Mr Norman Lamont's reputation as a fiscal innovator.

The chancellor's third Budget - and the last of the traditional spring revenue-raising budgets - will contain a package of measures to help the long-term unemployed and reduce the number of officially registered jobless from more than 3m at present.

It is also expected to provide encouragement for small businesses, which Mr John Major, the prime minister, believes can do most for job creation once the UK pulls out of recession.

As Budget day has approached, speculation has increased that Mr Lamont will partially offset tax increases by extending significantly the bottom 20 per cent tax band, which he introduced last year for the first Pounds 2,000 of taxable income.

Such a move would be a step towards turning the 20 per cent band into the tax rate for the average citizen. It could be financed by freezing tax thresholds for the higher paid and possibly by converting the personal tax allowance - the amount that people can earn before they pay income tax - into a tax credit that might apply at either the 25 per cent basic rate or the 20 per cent rate of income tax. At present, allowances are deducted from gross income to give disproportionate benefit to payers of the higher 40 per cent tax rate.

The news blackout surrounding the chancellor's Budget plans has been tighter than ever this year. But commentators believe Mr Lamont will announce a radical and innovative package in an attempt to boost the government's flagging political fortunes and his own chances of staying in office.

Apparently ruled out is a Budget Day cut in bank base rates from their current 6 per cent level. In recent weeks, Mr Lamont and the Bank of England have tried to discourage expectations of an early rate cut. The authorities not only believe that 6 per cent is the right level to encourage economic recovery but are concerned that lower rates could undermine sterling and so rekindle inflationary pressures.

Mr Lamont's main objectives will be to encourage economic recovery and convince financial markets that he will take no risks with inflation by allowing the UK's large government deficit to spiral out of control.

Polls of City institutions, taken by the financial information companies MMS International and IDEA, suggest that London's financial markets expect Mr Lamont will raise taxes by Pounds 2bn to Pounds 2.25bn in tomorrow's Budget and by Pounds 4bn in the first unified taxing and spending Budget in November.

The markets are hoping for relatively good news on the deficit. The consensus forecasts published by MMS and IDEA suggest the City expects Mr Lamont to announce a public sector borrowing requirement of Pounds 35bn for 1992-93, down from the Pounds 37bn forecast in the government's Autumn Statement. On the strength of the Budget measures, he is expected to predict a deficit of about Pounds 45bn for 1993-94, below recent expectations of Pounds 50bn.

The chancellor will take a relatively upbeat view of Britain's prospects: according to an interview with the Independent on Sunday yesterday, he believes Britain is heading for a 'period of normal and sustained growth'.

Week Ahead, Page 8 Editorial Comment, Page 13 Lamont to act on funding, Page 14 Currencies, Page 25

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy GOVT Government News P9311 The Financial Times London Page 1 605
Brussels warns of tit-for-tat war with US on trade: Row centres on Dollars 50m of federal contracts Publication 930315FT Processed by FT 930315 By LIONEL BARBER BRUSSELS

THE RISK of a tit-for-tat transatlantic trade war rose yesterday after senior EC officials warned that the Community might retaliate if the US were to bar European companies from bidding on telecommunication and public procurement contracts.

Sir Leon Brittan, EC commissioner for external economic affairs, called the Clinton administration's unexpected withdrawal from talks on the procurement dispute 'a very negative step' which was 'surprising and completely unnecessary'.

His criticism followed Friday night's decision by Mr Mickey Kantor, the US trade representative, to call off talks scheduled to take place in Brussels today, and a clear US threat to impose sanctions later this month.

Sir Leon avoided threats of retaliation, but other EC trade officials said Mr Kantor's abrupt move made it difficult to avoid a confrontation on March 22, the deadline which the US has set for the EC to dismantle allegedly discriminatory procurement rules for water, gas, electrical and telecoms contracts.

Mr Kantor said on Friday that the administration would bar European companies from between Dollars 40m (Pounds 28m) and Dollars 50m of federal contracts if the EC failed to waive Article 29 in the EC utilities directive, which came into force in January offering EC companies an advantage in contract bidding within the Community.

A senior EC official said the scale of US sanctions was minimal in comparison to the multi-billion dollar public procurement market, but the timing could not have been worse. It comes near the climax of the French parliamentary election campaign and with the Gatt Uruguay Round trade talks poised on a knife-edge.

The official warned that the EC might be forced to make a political gesture in response to 'blatant political pressure', raising the risk of a retaliatory trade war.

The US and EC have been sparring over government procurement rules for months.

The US claims that bidding opportunities worth Dollars 16.8bn were offered to EC contractors under the Gatt government procurement code in 1990, compared with Dollars 7.8bn in EC contracts open to US companies.

The EC agrees that in absolute terms the 1990 Gatt figures confirm that the US is more generous, but Brussels officials argue that the value of EC contracts open to US companies rose sharply between 1985 and 1990, while the value of US contracts fell over the same period.

Sir Leon was apparently not informed of Mr Kantor's announcement before it became public.

Speaking from Prague, Sir Leon suggested that the US had missed an opportunity to discuss constructive ideas which might have led to a resolution of the dispute.

EC officials said these ideas revolved around introducing reciprocity in EC-US government procurement, with the EC using Article 29 as a bargaining chip to gain access to lucrative transport and energy contracts at state level, or so-called 'sub-Federal procurement'.

A spokesman for Sir Leon said in Brussels yesterday that the Commissioner was determined to avoid public threats of retaliation. 'We are going to play the game properly right down to the wire.'

However, the spokesman agreed that Mr Kantor's threats of sanctions had raised the stakes in US-EC relations, putting even more pressure on the US trade representative's planned talks with Sir Leon in Brussels on March 29.

QR European Economic Community (EC) US United States of America P9721 International Affairs GOVT Government News P9721 The Financial Times London Page 1 579
Kohl clinches pact on east Germany Publication 930315FT Processed by FT 930315 By QUENTIN PEEL BONN

A BEAMING Chancellor Helmut Kohl, accompanied by opposition leader Mr Bjorn Engholm and state premiers from east Germany, announced agreement at the weekend on the public financing package to underpin a 'solidarity pact' for the east German economy.

The cross-party deal, finalised in 2 1/2 days of almost uninterrupted negotiations, puts into place the last main element in the pact which Mr Kohl has been seeking since September with the opposition, the 16 federal states, employers and trade unions.

The package of tax increases, spending cuts and increased subsidies and credit for the east was welcomed across the political spectrum as a deal which would revive the standing of the leading political parties in Bonn.

There was no immediate reaction from the German Bundesbank which has been watching the talks closely as the key to future public spending control.

The central bank was not prepared to give any indication to financial markets about its future interest rate policy, seeking merely to play down speculation that a solidarity pact agreement would automatically lead to further relaxation. The agreement received a cautious welcome from German industry.

Mr Theo Waigel, finance minister and principal architect of the package, said it would have a positive impact on international attitudes to Germany and in giving the Bundesbank room for manoeuvre. 'It will have a positive effect on the financial markets, and I am sure it will also have positive effect on the future decisions of the Bundesbank.'

Mr Waigel spelt out the details on Saturday night of a package which will raise income tax by 7.5 per cent through a reintro-duced 'solidarity surcharge' from January 1 1995, and raise public borrowing for east Germany by some DM60bn (Pounds 25.4bn).

The increased borrowing consists of DM30bn for the Treuhand privatisation agency to finance the continuing restructuring of unprivatised 'core industries' in east Germany and DM30bn for housing modernisation to speed up privatisation of dilapidated state-owned apartments.

In return for a delay in the tax rise, Mr Engholm's Social Democrats have won agreement that no social spending will be cut in a package of DM9.2bn in central government budget savings. They have agreed that a campaign against false social security and unemployment claimants should be launched.

The deal they were condemned to do, Page 13

DE Germany, EC P9311 Finance, Taxation, and Monetary Policy P9611 Administration of General Economic Programs GOVT Government spending P9311 P9611 The Financial Times London Page 1 419
Storms bring chaos to US east coast Publication 930315FT Processed by FT 930315

Residents check the damage to their neighbourhood in Gainesville, Florida, after it was hit by winter storms which left a trail of devastation along the Atlantic coast of the US. Up to 66 people were killed, motorways and airports were closed by heavy snow and flooding, and millions of homes were left without electricity. A state of emergency was declared by governors in 12 states, and President Bill Clinton ordered emergency aid to parts of Florida. By late yesterday, airports had re-opened, though delays were expected because of a flights backlog.

Airports paralysed, Page 3

US United States of America P99 Nonclassifiable Establishments RES Natural resources P99 The Financial Times London Page 1 125
World News in Brief: Swallows return Publication 930315FT Processed by FT 930315

The first swallows of the year have been sighted in Ilfracombe, Devon, and at Ardleigh Reservoir, near Colchester, Essex.

GB United Kingdom, EC P99 Nonclassifiable Establishments RES Natural resources P99 The Financial Times London Page 1 47
World News in Brief: Two on drugs charges Publication 930315FT Processed by FT 930315

Ian Harrington, 45, of North Cheam and publican Roy Grover, 49, of Hampton, both south-west London, are expected to appear before Dover magistrates today charged with illegal importation of amphetamine sulphate tablets after customs officers seized their biggest haul of the drugs, valued at Pounds 15m.

GB United Kingdom, EC P9229 Public Order and Safety, NEC PEOP Personnel News P9229 The Financial Times London Page 1 79
World News in Brief: Currie to fight Euro-seat Publication 930315FT Processed by FT 930315

Tory MP Edwina Currie has been selected to fight the Conservative-held Euro-seat of Bedfordshire South.

GB United Kingdom, EC P8651 Political Organizations P9121 Legislative Bodies PEOP Personnel News P8651 P9121 The Financial Times London Page 1 49
Monday Interview: Banker battles for reform - Boris Fyodorov, Russia's deputy prime minister for economics, talks to Leyla Boulton Publication 930315FT Processed by FT 930315 By LEYLA BOULTON

While working in London, Boris Fyodorov used to send advice to the reformist Russian government in the form of 'Notes from Afar' - a joking reference to Lenin's commentaries on the revolution which began without him in 1917.

After returning to Russia as deputy prime minister for economics and finance in December, this pugnacious 35-year-old is now at the centre of a battle to save a market revolution begun by others.

Two years ago, he quit as finance minister in protest against Mr Boris Yeltsin's failure to even start reform, and went to work abroad. Now, he says the government will fight on for its policies regardless of last week's bruising defeat by the Congress of People's Deputies of the Russian president, whom he describes as 'our main hope and support'.

The obstacles are formidable to the government pulling the country back from the brink of hyperinflation and pursuing economic restructuring. Its room for manoeuvre is limited by parliament, which wants not only to reduce Mr Yeltsin to a figurehead role but reverse his radical reform course.

Meanwhile, the central bank, no doubt anticipating a change of cabinet, is refusing to adjust monetary policy to the government's economic strategy.

'Either you send sailors to occupy the central bank,' Fyodorov joked in an interview, referring to Lenin's use of force to break up Russia's constituent assembly in 1918, 'or probably the central bank should assume all responsibility for the economy and run it. Then we shall see how they want to stimulate long-term investment at very low interest rates with inflation at 1,000 per cent.'

Joking aside, he said after the congress that it was a 'matter of life or death' for the government to get on with its job and for the central bank to co-operate. 'Either order is restored to this country, or it will continue to slide further and further into economic crisis.'

For this reason, Mr Viktor Chernomyrdin, the prime minister, joined President Yeltsin last week in calling for the central bank to be transferred from parliament to government control.

Fyodorov wants the central bank to agree to fixed limits for the growth of credit to the state and state-owned enterprises, even if it means telling the government there is no more money to finance the budget deficit.

'If the central bank did this, I would applaud them,' said Fyodorov, a former banker who was passed over for the central bank's chief job last year but makes no secret of the fact that he could have achieved far more there than in his present role.

'The government would then be forced to think better how to use scarce resources and get into policymaking - like social security and unemployment benefit - instead of trying to deal with kilos of milk and each state-owned enterprise.'

Next he wants an end to the subsidising of former Soviet republics through the issue of unbacked Russian central bank credits, which accounted for 25 per cent of credit expansion over the past year. He says these 'technical credits' and the continuing deliveries of rouble banknotes by Russia are delaying a decision by other republics on whether to introduce their own currencies, or follow strict conditions to keep the rouble as their currency.

Brought into the government to balance the appointment of an industrialist without an economic background as premier, Fyodorov advocates a 'normal' western-style solution to the plight of Russia's impoverished neighbours.

'If loans to these republics are necessary, we should have loan agreements, with terms, collateral and an interest rate,' he says, describing the present system of printing money for them as a 'real disaster'.

Attempting to use the good connections he kept while abroad, he has already tried and failed to convince opposition politicians to avoid 'at least superfluous disagreements' over economic policy.

Other obstacles he faces include a scarcity of reliable economic data and of skilled professionals within the state bureaucracy. 'In the two years I've been away . . . the better people have already left (for the private sector).'

Hinting at nostalgia for the bureaucracies he encountered while at the European Bank for Reconstruction and the World Bank, he also bemoans 'the dozens of signatures required on the back of any paper', and the time he has to waste meeting people 'who have nothing to do with policy'.

But ambitious for himself and his country, he has no regrets over trading a comfortable, but comparatively dull, life in the west for what is likely to be the toughest fight of his life.

'I want to see this country changed so it becomes a normal country and I don't have to intervene,' he explains.

Fyodorov saw the need for radical change early on. Like many Russian politicians and professionals of his generation, he joined the Soviet Communist party as a means to get ahead. But between completing his doctoral thesis in economics, and working for the party's policymaking central committee, he had already become committed to a pro-market ideology.

In 1990, he helped draft the radical 500-day programme for market reform, which was buried by the Soviet leader, Mikhail Gorbachev. In June 1990, he joined Mr Yeltsin's first administration in the hope that at least small, practical steps could be taken to build a market system in the biggest Soviet republic.

Today, he cannot say whether he will succeed, but he believes that the tumultuous collapse of the Communist party's rule while he was away shows that 'anything is possible in Russia'.

'Cutting the budget deficit and producing a normal central bank is a much easier task than ousting the Communist party. That I would never have believed possible 10 years ago. But now I can imagine radical reform happening in Russia.'

The politician in Fyodorov makes him say he is not counting on foreign help - an unpopular subject in Russia following the failure of the pro-western strategy pursued last year by Mr Yegor Gaidar, the former prime minister. But he suggests that it will be almost impossible for painful reforms to succeed without it.

'We're not Chinese,' he says, referring to the success of economic reforms under authoritarian rule in China. 'The question is: can we find mechanisms to substitute for dictatorship or occupation forces (such as those which pushed through economic adjustment in Germany and Japan after the second world war). Foreign aid could be a good substitute.'

Asked to prepare Russian proposals for Mr Yeltsin's April 4 meeting with US President Bill Clinton, Fyodorov was in Hong Kong yesterday to brief representatives of the Group of Seven leading industrial nations on how the west might prop up reforms in Russia.

His suggestions include a social fund to help support the unemployed if tight credit policies are instituted, plus a programme to encourage the growth of small businesses to create new jobs. He would also like funds to help stabilise the rouble and restructure state-owned industry.

But he says Russia must first institute restrictive financial policies, without which 'everything else would be wasted', and to devise mechanisms so that foreign cash is not squandered.

'There is no point in receiving assistance if it is not targeted (at specific problems). The question is how to receive this money properly, how to organise it - this is very, very difficult and frustrating,' he says, talking from his experience of the small flows of western finance trickling into Russia.

Despite his determination to press ahead whatever the west does, western guarantees of support over the coming weeks could play an important role in domestic Russan political battles. But Fyodorov stresses that such money should only become available if and when Russia can keep its side of any bargain. 'We have talked far too long. It is now time for action.'

------------------------------------------------------------------------ PERSONAL FILE ------------------------------------------------------------------------ 1958 Born in Moscow. 1980 Doctorate in economics from Moscow Finance Institute. 1980-87 Joined Soviet central bank. 1987-91 Institute for World Economy and International Relations. 1992 Russia's executive director of World Bank. 1992 Appointed deputy prime minister for economics and finance. ------------------------------------------------------------------------

RU Russia, East Europe P9611 Administration of General Economic Programs PEOP Personnel News Fyodorov, B Deputy Prime Minister for Economics Russia P9611 The Financial Times London Page 28 1394
A subtle battle of monetary wills: America Publication 930315FT Processed by FT 930315 By MICHAEL PROWSE

Central bankers and elected politicians have an uneasy relationship in most democracies. The US is no exception. Although the Federal Reserve has historically enjoyed far greater independence than, say, the Bank of England, it is careful to describe itself as independent within, rather than of, government. Many Democrats, moreover, are pressing for reforms to make it more open and accountable.

Mr Donald Riegle, chairman of the Senate banking committee, is one of several senior Democrats sponsoring bills that would increase Congress's leverage over the Fed. Flexing his political muscles last week, he summoned all 12 presidents of the regional Federal Reserve banks to Washington to deliver their first ever testimony en masse before his committee. The presidents were squashed together like a row of sardines and solemnly lectured on the need for 'teamwork' in the conduct of monetary and fiscal policy. Following President Bill Clinton's election, the nation was expecting 'more accountability from everybody', Mr Riegle declared, before departing early for a more important meeting at the White House.

The hearing was civil, although some of the presidents seemed disconcerted by the lordly demeanour of the senators, who wandered in and out of the hearing room, sometimes leaving their guests with hardly anybody to talk to. The presidents were kept sitting in place for more than four hours, finally being dismissed well after the normal lunch break. But the meeting has set a precedent: if and when inflation starts to rise and the Fed shows signs of tightening policy, the presidents will be hauled in for a public roasting. Even in today's benign economic climate, senators were seeking assurances that presidents would loosen monetary policy if deficit-cutting legislation retards growth.

The presidents are a target because they hold, in rotation, five of the 12 votes on the Federal Open Market Committee (FOMC), the body that sets the level of short-term interest rates (and hence strongly influences the short-run jobless rate). The Fed's board of governors, headed by Mr Alan Greenspan, holds the other seven votes. Yet while the Fed's governors are appointed by the White House and subject to Senate confirmation, the regional presidents are elected by private-sector boards and thus escape direct scrutiny by Congress.

Mr Riegle is co-sponsoring a bill introduced by Mr Paul Sarbanes, a colleague on the banking committee, that would strip the presidents of their right to vote on monetary policy decisions. The legislation is supported by Mr Jim Sasser, chairman of the powerful Senate budget committee, and in the House of Representatives by such heavyweights as Mr Lee Hamilton and Mr David Obey, chairman of the Joint Economic Committee.

A separate bill championed by Mr Henry Gonzalez, chairman of the house banking committee, goes further. It would keep the FOMC but subject regional presidents to the same selection and confirmation process as governors. It would mandate a more diverse FOMC, with positions reserved for women, minorities, community groups and unions. It would tackle excessive secrecy by subjecting the Fed to the Freedom of Information Act and by requiring the timely release of videotapes of FOMC meetings. Finally, it would ask a review body to investigate whether the geographical distribution of the regional Feds (which are clustered in the east) is appropriate given huge population and income shifts in the past 80 years.

The critics have some good points. As private citizens partly responsible for public policy, the regional presidents do have an anomalous role. There are few, if any, parallels abroad: even in Germany, the Land presidents who sit on the Bundesbank's policymaking central bank council are nominated by the Bundesrat (the upper house of parliament) and formally appointed by the president.

And last week the regional presidents - 12 middle-aged white males - inadvertently underlined the lack of diversity at the Fed. There has only ever been one female regional Fed president. No black or Hispanic has ever held the top job, not even at the Atlanta Fed, which covers much of the south.

The Fed is clearly vulnerable to the criticism that it does not promote minorities or women. But it is likely to resist any other changes on the grounds that the present system, even if anachronistic, seems to work quite well. The Democratic critics, for their part, are not likely to push their legislation too hard. With the economy reviving, the Fed is much less unpopular than at the height of the recession. Mr Greenspan, moreover, is a canny opponent, having already put himself in Mr Clinton's good books by warmly endorsing the president's economic plan - a move which is spurring the recovery by helping drive down long bond yields.

But this does not mean the Democratic campaign is not succeeding. The real goal is to intimidate the Fed's policymakers, to make the institution more malleable. The US is at a monetary turning point: depending on decisions in the next few years, the Fed will either firmly establish price stability for the first time since the 1950s or permit short-sighted politicians to embark on yet another inflationary cycle. The economic stakes could not be higher.

US United States of America P6011 Federal Reserve Banks P9131 Executive and Legislative Combined P9311 Finance, Taxation, and Monetary Policy GOVT Draft regulations CMMT Comment & Analysis P6011 P9131 P9311 The Financial Times London Page 28 897
Wanting it both ways: Europe Publication 930315FT Processed by FT 930315 By IAN DAVIDSON

When the French first elected a conservative majority to parliament, in 1986, to serve alongside their sitting Socialist president, they called it 'cohabitation'. Some said it proved the stability and the democratic maturity of the Constitution of the Fifth Republic.

But history rarely repeats itself. Next Sunday's election will again bring the right back to power. But this time the swing of the pendulum will be so fierce that cohabitation may test the constitution close to destruction.

The Socialists face the prospect of a humiliating defeat. Its severity will certainly shake the Socialist party to its foundations; the lesson may have equally seismic repercussions on the whole of the French political system; but its most immediate constitutional effect may be to undermine the political authority of the president.

The conservatives are virtually certain to win an overwhelming majority in parliament. The Gaullist RPR party and the UDF centre-right grouping could between them get over 400 seats; the Socialists could drop to as few as 100.

This must lead to frequent tests of will between the government and the president. And they are likely to be more intense than in 1986-88, because the right will have a much bigger majority. Some conservatives talk as if the scale of their prospective majority will give them the power, and even the right, to force President Mitterrand out of office. If so, France would be facing not cohabitation, but a major constitutional crisis.

This crisis may not occur. First, the conservative parties are deeply split on policy, and these splits are likely to gape wider as a result of the size of the conservative majority. Second, the leaders of the conservative parties are already locked in near-mortal combat for the presidential election looming two years away, and this struggle will become their top pre-occupation the day after the parliamentary election. So the new government majority may be much weaker than its size would imply.

A third factor could precipitate a constitutional struggle, however. In their election campaigns, Jacques Chirac, the Gaullist leader, and Valery Giscard d'Estaing, the UDF leader, both included protectionist commitments on agriculture, which could threaten serious conflicts with France's European partners and with the wider world of international trade. They have called for a renegotiation of the European farm policy reform package agreed by the 12 a year ago; both have rejected the farm deal provisionally agreed last year between the European Commission and the previous US administration.

President Mitterrand may not be one of nature's free traders; with high and rising unemployment, he may even believe that some reversion to France's atavistic protectionist reflexes would be politically popular; but his commitment to the closer integration of Europe is absolute. If Chirac and Giscard seek a major battle with the Community over the farm policy, this could provoke a fight with the president; and it is not clear, under the constitution, who would win.

The fundamental question posed by this election, however, is not whether the constitution can handle a political conflict between the president and the National Assembly; it is whether the political system in general can offer answers to the country's problems.

The Socialists will be repudiated on a grand scale: they have been there too long, and they are too contaminated by corruption. But there is no wave of popular enthusiasm for the conservative parties: the prospect is for a large protest vote. The ecologists, the Communists and the extreme right-wing National Front could between them rack up some 35 per cent of the total.

The huge conservative majority will be mainly due to the French voting system, which penalises small parties. A second reason is that part of the Gaullist party has shifted sharply to the right; it is eating into the support of the National Front by openly espousing nationalist and anti-European nostrums. Last year the Maastricht treaty votes revealed deep hostility among a majority of Gaullist members; the party is likely to have even more anti-Community members next time round.

However, the conservative leaders are trying to have it both ways. They are promising a leap back in history, in the hope of appealing to the farmers and the anti-Europeans; Chirac even promises to boycott the Community, in order to block an EC-US farm deal. On the other hand, they insist on France's continued commitment to the strong franc policy, and they promise new initiatives to strengthen monetary links with Germany, coupled with the independence of the Banque de France.

The explanation for this contradiction is simple: the election victory is a poisoned chalice for the conservatives. They do not have an answer to the central political problem, which is unemployment; and they have no alternative economic policy to that of the Socialists. By the time of the 1995 presidential election, they will have been in power long enough to be held responsible, but will not have been able to bring down unemployment.

In addition to the scapegoats from the past (the Socialists), therefore, they must set up external enemies, in Brussels and Washington. You may think it rather difficult to combine a protectionist policy on agriculture with an integrationist policy on money; so does Mr Klaus Kinkel, the German foreign minister. But if you were Bill Clinton, toying with the pros and cons of starting some trade conflicts with the outside world, you would have one reason to hold your hand: the French may take the blame for firing the first shot.

FR France, EC P8651 Political Organizations P9121 Legislative Bodies CMMT Comment & Analysis P8651 P9121 The Financial Times London Page 28 942
Foreign Exchange and Money Markets: Budget test for Pounds Publication 930315FT Processed by FT 930315 By EMMA TUCKER

The UK Budget is expected to make an impact on the currency markets this week although analysts are divided as to how sterling will react, writes Emma Tucker.

Many analysts have ruled out another UK base rate cut following comments from the Bank of England that it is concerned not to see sterling drop below its current level of around DM2.39. Nevertheless, if Mr Norman Lamont, the chancellor, announces severe fiscal tightening measures tomorrow, the foreign exchanges may react badly in anticipation of further monetary easing. In the longer term, however, a tight budget would improve prospects for the currency.

With the economic recovery still fragile, it may be that the chancellor confines himself to outlining plans for reducing the public sector borrowing requirement in the medium term.

The other big event for the currency markets this week is Thursday's regular Bundesbank council meeting. The German bank has eased the rates on its 14 and 28-day repo funds, but this is no guarantee that it will announce a cut in its discount and Lombard rates on Thursday.

Mr Julian Jessop of Midland Global Markets believes the Bundesbank will not cut its discount rate until it is satisfied that the Solidarity Pact has been fully agreed.

This will be of little comfort to the French, however, whose currency may suffer speculative pressure ahead of the first round of national assembly elections next weekend. French opposition parties, which are expected to win the vote, face the dilemma of wishing for a substantial cut in interest rates while at the same time maintaining the franc's link to the D-Mark.

The peseta, the krone and the escudo may also come under attack. On Friday there was intense selling of the escudo as the markets reacted with hostility to apparent differences between the finance ministry and the Bank of Portugal.

QR European Economic Community (EC) GB United Kingdom, EC DE Germany, EC FR France, EC P6231 Security and Commodity Exchanges P9311 Finance, Taxation, and Monetary Policy CMMT Comment & Analysis MKTS Market data P6231 P9311 The Financial Times London Page 25 363
International Bonds: Dresdner Bank goes to the top of the D-Mark table Publication 930315FT Processed by FT 930315 By ANTONIA SHARPE

WITH the first quarter coming to a close, the volume of new D-Mark Eurobond issues so far this year puts Dresdner Bank ahead of Deutsche Bank in the D-Mark underwriting league table.

Excluding in-house deals, Dresdner has launched DM11.55bn worth of D-Mark issues since the start of 1993, compared with DM10.90bn for Deutsche, according to the new international bond issues tables published daily by the Financial Times.

The figures also show that the two banks have consolidated their dominant position in the D-Mark sector - Commerzbank comes a poor third with DM1.7bn, excluding an in-house deal - and that the profile of foreign banks remains low.

Observers believe that Dresdner's emergence at the top of the table, as well as its recent success in winning mandates such as the DM2.9bn Eurobond issue for the European Community, reflects a sweeping re-organisation of the bank's new issues department.

The man wielding the broom is Mr Hansgeorg Hofmann, who joined Dresdner at the end of 1989 from Shearson Lehman. Insiders say that Mr Hofmann has galvanised his team into embracing a more international approach to the syndication and trading of new issues.

For example, it was Dresdner which introduced the fixed price re-offer concept to the D-Mark sector when it arranged a DM2.5bn issue for Sweden last October.

This mechanism, which had been adopted several years earlier in the other sectors of the international bond market, makes the pricing of issues more transparent for the investor. It has also made the new issues business more profitable for the banks involved in underwriting the deals.

Before the introduction of the fixed price re-offer, the D-Mark sector was still geared to Europe's army of retail investors. But since then, the market has opened up more to international and institutional investors.

Dresdner's fresh approach to the new issues business has coincided with a marked increase in demand for D-Marks over the last year. The collapse of the Ecu market, following Denmark's rejection of the Maastricht Treaty, heightened the currency's 'safe haven' attraction for investors.

At the same time, the D-Mark sector was one of only a few areas of the Eurobond market which offered sufficient liquidity to sovereign borrowers seeking to replenish their currency reserves after the turmoil in the exchange rate mechanism.

Not surprisingly, sovereign and supranational borrowers have dominated the D-Mark sector so far this year. Most of the deals slated to appear in the first quarter have been launched, though one further issue of up to DM2bn could emerge by the end of the month.

Borrowers are being discouraged by the widening of yield spreads on D-Mark sovereign paper over German government bonds, following the downgradings of the foreign-currency debt of Italy and Finland.

For example, the yield spread on Italy's 7 1/4 per cent Eurobonds due 1998 has widened to 65 basis points over bunds compared with a spread of 47 basis points at the launch in January. The spread on Finland's 7 1/2 per cent seven-year Eurobonds has increased to 80 basis points from 53 basis points.

DE Germany, EC QR European Economic Community (EC) P6211 Security Brokers and Dealers MKTS Market data P6211 The Financial Times London Page 19 549
Risk and Reward: Wave of FRNs helps to meet surprise demand in US Publication 930315FT Processed by FT 930315 By TRACY CORRIGAN

THE STRONG run in the US Treasury market has brought long-bond yields down to new lows. With deposit rates languishing at around 3 per cent, investors are keener than ever to find a way to enhance their returns. And they have become increasingly willing to take positions to express their views on the market.

The latest trend is for plays on the shape of the yield curve, or on bond yields, as well as on short-term rates.

While short-term interest rates in European markets are still expected to fall, US short-term rates are widely believed to have reached their lows. But when they will start to rise, how the shape of the yield curve will change and which way bond yields will move are questions which investors are addressing.

The result has been a wave of structured products to meet a demand the depth of which has surprised bankers. In the US market, the US agencies have issued a spate of CMT floating-rate notes, a structure which pegs the coupon rate to 10-year Treasury yields (the reference yield is the constant-maturity treasury or CMT).

The concept has now been brought to the Eurobond market by Lehman Brothers, whose brand name for the instrument is the SURF - step-up recovery floater.

The coupon of these seven-year instruments is reset every six months to equal half of the CMT rate plus a predetermined margin. In addition, the notes offer a minimum interest rate of interest of, say, 5 per cent.

With 10-year Treasury yields around 6 per cent, an investor would theoretically receive 4 1/2 per cent, so the minimum coupon of 5 per cent appears attractive. This is below current seven-year yields - the seven-year US Treasury yield is quoted at about 5.6 per cent - because the interest rate is reset every six months, but the investor has some upside potential from an increase in 10-year yields, whereas a fixed-rate bond holder loses capital if yields rise.

The structure represents a play on the yield curve. The investor is taking the view that the US yield curve will remain steep over a period of time - or that if it flattens, rates will be low across the curve - and expects the downside protection of 5 per cent to be sufficient compensation if this view proves incorrect. Many market professionals are taking the opposite view. Dealers report a high level of activity concentrated on plays on a flattening of the US yield curve.

'Basically, a lot of people are buying the long end and shorting the front end of the US Treasury market,' said one trader.

The CMT floater structure is economically viable because the derivative products used to create it are relatively cheaply available in the OTC market. This reflects an assumption among many traders that the yield curve will flatten. The spread between two-year and 30-year Treasuries has already declined from around 370 basis points in the autumn to below 300 basis points.

The theory is that economic recovery is on the way in the US, so short-term interest rates will start to rise slowly; but the relative lack of inflationary pressure and hopes that President Clinton will be able to reduce the budget deficit will prevent yields from rising substantially at the long end of the market.

Last week also saw a revival of activity in the market for collared floating rate notes - floating rate notes with minimum and maximum coupon levels. The buyers of these notes have been largely continental European investors, keen to lock in coupons of about 5 per cent, at a time when current money market rates are more than 1 1/2 points lower. Since the market opened in July, there has been more than Dollars 11bn of collared floaters in the dollar market, as retail demand has vastly exceeded expectations.

In order to structure these transactions, the issuer sells a cap and buys a floor, using the money raised by selling the cap to pay for the floor. When the Treasury market falls, the value of the cap increases, making the process more attractive to the issuer.

The flaw is that as soon as money market rates rise above 5 per cent, much of the value of the paper will be instantly eroded, and investors may face large capital losses.

US United States of America P6211 Security Brokers and Dealers P9311 Finance, Taxation, and Monetary Policy MKTS Market data P6211 P9311 The Financial Times London Page 19 767
US Money and Credit: Producer price index rise triggers sharp reversal Publication 930315FT Processed by FT 930315 By PATRICK HARVERSON

AS ONE particularly sagacious technical analyst on Wall Street pointed out last week: 'A tree does not grow to the sky.'

This literary flight of fancy was meant to encapsulate the bond market's recent performance. In less elegant terms, what the analyst implied was that prices cannot go on rising for ever; what goes up, must come down. And the bond market last week came down, in no uncertain terms.

The benchmark 30-year government issue tumbled almost 1 1/2 points on Friday, pushing the yield up to 6.87 per cent at one stage. Over the week, the yield rose about 20 basis points, 'bringing to an end a string of eight consecutive weeks in which the long bond yield was lower on a Friday-to-Friday basis,' noted Smith Barney's credit market analyst Mr Doug Schindewolf.

Why the sudden turnround? The trigger for the dramatic sell-off was the February producer price index, which rose 0.4 per cent during the month - a bigger increase than the market had expected. The rise in producer prices was broad-based; everything from cars to capital equipment, tobacco and household appliance prices rose significantly last month.

Moreover, the core rate of inflation - which excludes the volatile food and energy components - has risen at an annual rate of 4.2 per cent so far this year, not of itself desperately worrying but suggestive nonetheless of an upward trend that could become dangerous if unchecked. Additionally, the announcement of the PPI data came against a background of rising commodity prices, and not too soon after the oil producing countries of Opec agreed to cut production.

Comments on Friday afternoon from Mr Wayne Angell, the Federal Reserve governor, to the effect that rising prices reflected economic growth that was probably stronger than realised, did not help sentiment either.

Despite all this, the PPI figures and Mr Angell's remarks would not normally have warranted such a dramatic reaction from bond investors were it not for the fact that the bond market had grown too complacent about the inflation threat. Consequently, the news on producer prices served to waken investors from their slumbers with an overdue and not unwelcome shock.

No one, however, is ringing any alarm bells, at least just yet. While describing the PPI report as 'one of the most disturbing we have seen in months,' Nikko Securities chief economist Mr Bob Brusca believes that the figures do not foreshadow a quickening in the pace of inflation. He says: 'Money growth trends are still down, worldwide growth is weak and the US economy is again in more uncertain growth territory.'

Whether the bond market over-reacted to the PPI figures or not, there is no doubting that this week's release of the consumer price index for February, scheduled for Wednesday, will be more closely watched than ever.

If the CPI figure is at or above January's unexpectedly strong 0.5 per cent increase, market sentiment is likely to take another turn for the worse. Analysts, however, are predicting a rise in February consumer prices of between 0.3 per cent and 0.4 per cent.

Their confidence that there will not be a repeat of January's figure is based partly on the belief that that month's increase was fuelled by a variety of temporary price pressures (such as a tobacco tax rise and the end to airline fare breaks), and partly on a faith in historical precedence.

A look back over the past decade shows that consumer prices have risen sharply in January, only to slow again in February. It is a phenomenon that no one seems to have a particularly strong explanation for, other than to blame it on adverse weather conditions.

US United States of America P6211 Security Brokers and Dealers P9611 Administration of General Economic Programs CMMT Comment & Analysis MKTS Market data P6211 P9611 The Financial Times London Page 18 660
UK Gilts: Pre-Budget nervousness is evident Publication 930315FT Processed by FT 930315 By PETER MARSH

THE gilts market is divided over the steps Mr Norman Lamont, the chancellor, should announce in his Budget speech tomorrow to tackle the rising public sector borrowing requirement.

As Mr Lamont ponders the gap between public spending and borrowing, he is a bit like a man with a festering boil. He is undecided on whether to leave the deficit alone, or to administer surgery which could ultimately misfire.

The nervousness in the market before the Budget was evident last week. Trading was volatile as many investors took profits after the run of several weeks of falling yields at the long end of the market.

During the week, the short end of the market showed a small price rise, with yields for five-year bonds falling by about 10 basis points to 6.4 per cent. The move was more the result of technical switching down the yield curve rather than any strong sentiment about an imminent fall in bank base rates, now at 6 per cent.

Some gilt practitioners reckon that - even with the PSBR set to reach about Pounds 50bn in 1993-1994 after a likely Pounds 37bn or so this year - Mr Lamont should resist the temptation to tackle the deficit through fiscal tightening. They reckon such a move would hit consumer and business confidence, and deal a blow to recovery hopes. A new leg to the UK recession could mean the deficit would go up even more over the next few years, because of reductions in tax income and higher social security spending.

Another body of opinion thinks drastic action to curb the deficit is necessary. According to this view, without a fiscal tightening the PSBR could soar to Pounds 60bn to Pounds 70bn by the mid-1990s. That would depress gilt prices because of the large volumes of bond issues which would be necessary. This school of thought favours a large tax rise of some Pounds 5bn in the coming financial year, possibly accompanied by a cut in interest rates to 5 per cent.

In between these two views is the position of Mr Gavyn Davies, chief UK economist at New York bank Goldman Sachs. He would like Mr Lamont to announce a package of tax increases, but delay their implementation until 1994-1995. This, he reckons, would reassure financial markets of the government's determination to reduce the PSBR, but stop short of damaging short-term prospects for an upturn.

That argument fails to convince Mr Chris Dillow, UK economist at Nomura, the Japanese securities house. He thinks Mr Lamont should ignore the PSBR. 'The Budget should be as boring as possible,' he says. 'History has shown that bold budgets often do more harm than good.'

According to Mr Dillow's analysis, the PSBR will fall naturally as the economy recovers - something he thinks is on course. That view is supported by evidence such as last week's announcement by the Confederation of British Industry that retail sales volumes in February showed strong year-on-year growth for the second month running.

Mr Dillow says any increase in income tax or value added tax would increase inflation, either because of the push these measures would give to wage inflation or because of the direct impact on consumer prices. He thinks the negative effects for gilt yields of a tax rise would more than offset any immediate positive impact gained through reduced need for new bond issues.

Mr Robert Thomas, head of research at the capital markets division of National Westminster Bank, says aside from any decisions over taxation the gilt market would gain most satisfaction if Mr Lamont changed the funding rules to allow purchases of gilts by bank and building societies to count towards financing the PSBR.

He thinks the government would earn high marks by going back to broad money targeting as a set of guidelines for economic management to replace the discarded nostrums of the European exchange rate mechanism.

GB United Kingdom, EC P6211 Security Brokers and Dealers P9311 Finance, Taxation, and Monetary Policy CMMT Comment & Analysis MKTS Market data P6211 P9311 The Financial Times London Page 18 693
French Bonds: A signal from Germany more vital than poll Publication 930315FT Processed by FT 930315 By ALICE RAWSTHORN

THE PROSPECT of a general election should in theory cast a cloud of uncertainty over the bond market, but, in practice, France's forthcoming parliamentary elections have done nothing of the sort.

There are less than two weeks to go before the final round of voting in the French elections. The conservative opposition has such a strong lead over the ruling socialists in the opinion polls that a change of government seems inevitable. But the right's economic policy is so similar to the left's that the Paris bond market has been spared the usual spate of pre-election nerves.

'The election isn't really a factor for the bond market,' said Mr Francois-Xavier Chauchaud, economist at Banque Indosuez in Paris. 'The big issue for French bonds is the same as always - interest rates.'

French bonds have been waxing and waning for months on speculation about whether - or, more recently, when - the Bundesbank will signal a serious reduction in German rates, thereby paving the way for the Bank of France to cut French rates.

For the past two weeks the Paris market has been buoyed by a surge of interest from international investors, particularly from the US, in the expectation of action from the Bundesbank.

The market rallied again on Thursday, on the news of rate reductions in Denmark, Belgium and the Netherlands, only to waver on Friday when the foreign exchange markets renewed their pressure on the franc.

The yield on the benchmark 10-year OAT government bonds stood at 7.36 per cent by the end of trading last week, against 7.28 per cent at the end of the previous week and 7.78 per cent a month before.

However the spread between French and German bonds, which rose as high as 100 basis points earlier this year when the markets mounted another assault on the franc, is still relatively steep at around 80 basis points.

Economists expect the spread to fall steadily after the elections, providing interest rates come down. 'The medium term outlook for French bonds is fairly promising,' said Mr Jean-Francois Mercier, French economist at Salomon Brothers. 'The Germans really must make significant cuts in interest rates soon, not only because of their commitment to the European Monetary System but also because of the growing pressures on their own economy.'

Mr Chauchaud of Banque Indosuez suspects the spread could fall as low as 50 basis points by mid-summer, by when he reckons the yield on 10-year OATs should be 7 per cent. He expects a further fall in the spread from autumn onwards as the effects of lower interest rates alleviate the strains on the French economy.

However a lingering cause for concern is whether the next French government will really be as stalwart as the socialists in its commitment to a strong French currency. The joint manifesto of the RPR and the UDF says they will be. Leading figures in both parties have dutifully pledged their support to the franc fort policy.

The UDF is seen as much more solid on the currency front than the RPR, which includes a number of outspoken right wingers, notably Mr Charles Pasqua and Mr Philippe Seguin, who led the anti-Maastricht campaign in last autumn's referendum and have since called for the devaluation of the franc.

The RPR has edged ahead of the UDF in the latest polls, thereby raising fears that an RPR prime minister, such as Mr Edouard Balladur, finance minister in the last conservative government, could come under pressure to devalue from the Pasqua/Seguin faction.

'The bond market is waiting for firm proof that the right's campaign promises will really become policy,' said Salomon's Mr Mercier. 'The new government will have to act quickly to reassure the market or French bonds could become very jittery.'

FR France, EC P6211 Security Brokers and Dealers CMMT Comment & Analysis MKTS Market data P6211 The Financial Times London Page 18 666
International Company News: Italy's final step to private pension funds - The imminent move has already bolstered the stock market Publication 930315FT Processed by FT 930315 By HAIG SIMONIAN

Almost 11 years ago, Mr Enzo Berlanda, then a senator in the Italian parliament and today chairman of Consob, the country's companies and stock exchange watchdog, first drafted legislation for the creation of private pension funds.

This month, the government gave the funds the green light, putting another of the missing pieces of Italy's financial jigsaw into place and bringing the country closer in line with its big European neighbours.

Although still to be debated in parliament, the government's decision to use a decree law, by-passing lengthy discussion, means official approval for pension funds could come as early as next month.

That has already bolstered the stock market, where the prospect of a large injection of fresh institutional money has helped drive up prices.

The inauguration of private pension funds could also help the government's ambitious privatisation programme. One of the main obstacles has been the relatively small size and limited liquidity of the Milan bourse; any increase in the amount of funds flowing into the market should smooth the way for flotations or capital increases by cash-hungry state-owned companies.

The new law has boosted insurance stocks in particular. They are seen as the biggest potential beneficiaries from private pensions in view of their actuarial expertise and existing know-how in life insurance.

Mr Angelo Marchio, managing director of RAS, is bullish about prospects. 'We're ready to go ahead as soon as the law is approved,' he says. RAS is already active in pension or pension-related activities, by running pension plans for some big private companies or through its own life insurance policies for the public.

Like other insurers, Mr Marchio is keen for established insurance companies to play a central role in running the new private pensions. Although some details are still unclear, private pensions will be available in a variety of ways. Individuals will be able to take out their own schemes, while collective bodies, such as trade unions or professional associations, will also be able to offer private pensions to members, as will smaller companies which do not operate group pension schemes at present.

The insurers see a role both as agents, collecting and administering premiums and pension payments on behalf of organisations running their own schemes, and as principals, offering private pension plans directly to the public.

Mr Marchio also expects insurers to be active in managing funds. While some insurers might contract out administration to third parties, such as a bank or a Societa di Intermediazione Mobiliare, Italy's new brand of securities house, others will manage the money internally. RAS is already one of Italy's biggest institutional investors, with about L7,000bn (Dollars 4bn) in the 13 investment funds it now administers.

Some observers have predicted that the arrival of private pension funds could reshape Italian capitalism by creating a new source of long term risk finance for the stock market. The new, professionally-managed money could help to stabilise what is still a highly-speculative market and, some believe, persuade more of the country's privately-owned companies to go public.

However, both Mr Marchio and Mr Gianmario Roveraro, managing director of Akros, a leading investment bank, are cautious as to whether pension funds on their own will do all that is expected.

'Our priority will be to pay pensions, so the risks of our investments will have to be examined very closely,' says Mr Marchio. 'If equities offer acceptable dividend yields and potential capital gains, they would be an obvious investment.' But he says pensions funds in particular, which need to consider payment obligations well into the future, tend to require carefully-balanced portfolios involving a wide variety of assets.

'First you have to ask how much new money might be available - one theory is around L5,000bn a year,' says Mr Roveraro. 'Then you need to think how much of that will go into shares rather than bonds.

'Even in countries, unlike Italy, where shares offer better yields than bonds, and where the legislation covering the mix of pension fund investments is relatively liberal, only a relatively limited proportion of funds find their way into equities,' he cautions. 'I don't think the effect on the bourse will be dramatic. I see pension funds as one of a variety of measures which will help to create a bigger and more liquid equity market.'

Mr Roveraro thinks the biggest impact will be on the bond side, where the new institutional money may help to deepen Italy's capital market by creating a pool of cash for long-term corporate borrowing.

At present, long-term domestic bonds are dominated by the government, which offers relatively high returns and tax incentives to entice private savings into funding the budget deficit. That has crowded out big corporate borrowers, which have been forced to use the Euromarkets, while smaller companies have fallen back on bank lending.

The arrival of private pension funds, which are natural buyers of long-term fixed-income securities, could help create a new long-term credit market, thinks Mr Roveraro. Borrowers could either be companies, or one-off issuers linked to essential public-works projects, such as new bridges or motorways.

'Why not issue a 25-year, index-linked security to fund a new highway project, for which big insurance companies would be natural takers?' he asks. Provided the new securities were granted equal treatment with government bonds, the paper would be highly appealing to institutional investors looking for fixed, inflation-protected returns, while broadening Italy's capital markets as a whole.

IT Italy, EC P6371 Pension, Health, and Welfare Funds P9651 Regulation of Miscellaneous Commercial Sectors GOVT Draft regulations CMMT Comment & Analysis P6371 P9651 The Financial Times London Page 17 957
International Company News: IRI in L340bn funding deal with telecoms unit Publication 930315FT Processed by FT 930315 By ROBERT GRAHAM ROME

AN INCREASINGLY serious financial crisis is forcing IRI, the principal Italian state holding company, to squeeze funds for the second time in five months from Stet, the cash-rich subsidiary controlling its telecommunications holdings.

In an unprecedented move, IRI has reached provisional agreement to cede to Stet for three years the dividend on 440m shares held in Comit, the commercial bank.

Stet would in turn pay L340bn (Dollars 215m) in advance to IRI at the rate of an average annual return of 23 per cent from the Comit shares. The return on income has been computed to include a complex system of tax breaks.

The deal has yet to be formally approved by both parties but leaked details were later confirmed by IRI.

Indeed, Stet management has already begun to defend what promises to be a controversial arrangement at a time when the group needs heavy investment, and is due to see IRI's 53 per cent controlling stake privatised.

IRI was already criticised last October for selling off to Stet for L671bn control of Finsiel, its main software company.

Despite both sides claiming the sale represented a match of synergies, analysts believed it was a means of IRI obtaining cash through the sale of Finsiel shares at an advantageous price.

This reasoning led to an immediate 23 per cent fall in Stet shares which only recovered after an extensive damage limitation exercise by the management.

The latest arrangement bears all the hallmarks of dire necessity. IRI management has suffered two major setbacks recently. The privatisation process has proved slower than expected with deals such as the sale of its foodstuffs and supermarket group, Sme, and its banking assets being behind schedule.

More important, estimates of 1992 losses in Ilva, its steel arm, and in Iritecna, civil engineering, have increased almost five times to total L3,900bn.

While these losses need to be covered, IRI is also having to meet obligations on its consolidated debt totalling L70,000bn.

The combination of these two elements is putting enormous strain on IRI's financial resources, producing expedients like the proposal to cede dividends rights in Comit to Stet. Over the weekend critics argued that the Stet deal would not even ease the problems of Ilva and Iritecna losses.

Stet itself has to demonstrate its investments plans will not be affected by the cash hand-out to IRI. The Stet case appears to rest largely on being able to take advantage of take breaks on the deal.

In 1991 ENI, the state oil concern, a little noticed move ceded to a value of lire 475bn dividend rights in its subsidiary Snam, to Agip its exploration and production arm.

IRI Istituto per la Riscostruzione Industriale STET Societa Finanziara Telefonica IT Italy, EC P6719 Holding Companies, NEC P4813 Telephone Communications, Ex Radio COMP Company News P6719 P4813 The Financial Times London Page 17 493
International Company News: Consortium to cover Comptoir's urgent cash needs Publication 930315FT Processed by FT 930315 By WILLIAM DAWKINS PARIS

A CONSORTIUM of financial institutions has agreed to cover the immediate cash needs of Comptoir des Entrepreneurs, a French 145-year-old property bank crippled by bad loans on commercial property, pending a FFr1bn (Dollars 176m) recapitalisation.

The Banque de France, the French central bank, said the main credit institutions in Paris had agreed to refinance CDE's treasury needs, but did not reveal their names or the amount. The move is the latest example of the French financial authorities' strategy of trying to defuse the worst financial impact of the Paris commercial property crisis, and as such is likely to be welcomed by the market. CDE made a consolidated loss of just over FFr1bn last year after heavy property write-downs.

CDE's shareholders, led by AGF, the state-owned insurer, are putting the finishing touches to a FFr800m issue of fresh equity and FFr200m of perpetual subordinated securities, to be presented at the next board meeting on Wednesday. Other leading shareholders include Depfa, a German mortgage bank, and UAP, the largest French state insurer.

The group was founded in 1848 to provide state-subsidised loans for cheap housing but expanded into normal commercial and private property lending after that role was wound down in 1984. It now has FFr10bn of risky loans to property industry professionals, on which it has made FFr2bn of provisions.

CDE's management is urging the government to guarantee more of the group's own borrowings, which it says is essential to restoring its credit rating. Because of CDE's financial problems, the S&P Adef French credit rating agency recently lowered its ratings on CDE.

Currently, the state guarantees FFr34bn of CDE's debts, left over from its old role as a financer of cheap housing, on top of which the group has another FFr42bn of debt, including FFr28bn of property bonds. The government has so far been cautious over extending this kind of support.

Comptoir des Entrepreneurs FR France, EC P6162 Mortgage Bankers and Correspondents P6159 Miscellaneous Business Credit Institutions COMP Company News P6162 P6159 The Financial Times London Page 17 357
International Company News: Promodes ahead 19% in sluggish retail sector Publication 930315FT Processed by FT 930315 By ALICE RAWSTHORN PARIS

PROMODES, one of France's largest retail groups, managed to increase net profits by 19.4 per cent to FFr555m (Dollars 98m)in 1992 from FFr465m in 1991 despite the slowdown in the French economy and the pressures on the retail scene.

The group, already one of the largest participants in France's dynamic hypermarket sector and which has recently been expanding its international activities, notably with the 1991 acquisition of Plaza in Germany, saw turnover rise by 10.3 per cent to FFr84.2bn last year from FFr76.37bn in 1991.

Last year the French retail sector came under pressure because of the general strains on the French economy. The combination of high real interest rates and fears of rising joblessness has depressed confidence and consumer spending was static during the year.

Promodes produced a 32.5 per cent increase in operating profits to FFr1.76bn in 1992 from FFr1.33bn in 1991.

The group said that it lost money on some of its new international subsidiaries, but countered this with a strong performance from its existing interests.

Earnings per share rose by 19.7 per cent to FFr33.5 last year from FFr28.0 in 1991. The board proposed raising the dividend by 20 per cent to FFr7 a share for 1992.

Promodes FR France, EC P5411 Grocery Stores FIN Annual report P5411 The Financial Times London Page 17 238
International Company News: Cross border M&A deals Publication 930315FT Processed by FT 930315

------------------------------------------------------------------------ BIDDER/INVESTOR TARGET SECTOR VALUE COMMENT (pds) ------------------------------------------------------------------------ British Airways (UK) Qantas (Australia) Airlines 325m 25% stake sealed ------------------------------------------------------------------------ Royal Pakhoed Panocean Storage & Storage 55m Price (Netherlands) Transport (UK) Includes debt ------------------------------------------------------------------------ Nissan Motor (Japan)/ Zhengzhou Nisson Trucks 30m Production Zhengzhou Light Truck Automobile (JV) venture (China) ------------------------------------------------------------------------ Thomas Cook (UK/ Owners Abroad (UK) Travel 29m Unusual Germany) 12 1/2% tender ------------------------------------------------------------------------ Time Products (UK) Judith Leiber (US) Luxury 12m Brand goods purchase ------------------------------------------------------------------------ Peek (UK) Signal Control/ Traffic 2.9m Continues Signal Maintenance systems overseas (US) expansion ------------------------------------------------------------------------ Nippon Investment Advanced Risc Semicon- 0.7m Venture & Finance (Japan) Machines (UK) ductors capital stake ------------------------------------------------------------------------ Rothmans Int'l (UK)/ Rothmans Nevo (JV) Tobacco n/a Plans for Nevo Tobacco (Russia) 55m investment ------------------------------------------------------------------------ Atlas Copco (Sweden) Robbins Company Boring n/a Strengthens (US) machines sector position ------------------------------------------------------------------------ PepsiCo (US) FAU (Hungary) Soft n/a Buying drinks bottler ------------------------------------------------------------------------ Zurich Insurance Municipal Mutual Insurance n/a Negotiat- (Switzerland) Insurance (UK) ions concluded ------------------------------------------------------------------------

GB United Kingdom, EC NL Netherlands, EC JP Japan, Asia CN China, Asia DE Germany, EC RU Russia, East Europe SE Sweden, West Europe CH Switzerland, West Europe US United States of America P99 Nonclassifiable Establishments COMP Mergers & acquisitions P99 The Financial Times London Page 16 216
UK Company News: Platon shareholders told to ignore offer from Wills Publication 930315FT Processed by FT 930315 By PAUL TAYLOR

PLATON International, the USM-quoted instrumentation group fighting a hostile Pounds 2.88m bid from Wills Group, has issued its formal defence document urging shareholders to ignore Willis' 27p-a-share paper offer.

In its letter to shareholders the Platon board, led by Mr Robin Meyer, chairman, again describes the Wills offer as 'wholly inadequate,' and urges them to take no action on the bid.

Wills, an industrial, electronic and automotive products company, acquired 30,000 Platon ordinary shares (0.03 per cent) at 26 1/2 p each 10 days ago and has received irrevocable undertakings to accept the offer from shareholders holding a further 15.7 per cent.

The offer closes on Friday.

Platon International Wills Group GB United Kingdom, EC P3823 Process Control Instruments P3825 Instruments To Measure Electricity P5099 Durable Goods, NEC P5199 Nondurable Goods, NEC COMP Company News COMP Acquisition P3823 P3825 P5099 P5199 The Financial Times London Page 16 167
UK Company News: Shaw Industries acquires Kosset Carpets Publication 930315FT Processed by FT 930315 By STEVE THOMPSON

Kosset Carpets, the biggest carpet manufacturer in the UK, has been bought for an undisclosed sum by Shaw Industries of the US. Shaw, the largest carpet manufacturer in the world, has no European manufacturing base.

Kosset emerged from the ruins of Coloroll, the home furnishings group run by Mr John Ashcroft, which collapsed in 1989, via a Pounds 10m management buy-out engineered by Kosset's chairman and chief executive, Mr John Parker. Mr Parker will retain his position at Kosset.

Shaw has guaranteed the 720 jobs at Kosset's manufacturing plant in Bradford and is expected to invest heavily in an expansion plan.

Kosset Carpets Shaw Industries GB United Kingdom, EC US United States of America P2273 Carpets and Rugs COMP Acquisition P2273 The Financial Times London Page 16 144
UK Company News: Midland Ind Newspapers buys 8 titles Publication 930315FT Processed by FT 930315

Midland Independent Newspapers is to buy 8 titles in the Thomson Regional Newspapers north division. The titles, which have a distribution of almost 500,000, would double the size of MIN's free weekly operation.

The free weeklies are all based in the East Midlands and form part of Thomson Free Newspapers' Herald and Post series.

MIN, formed after a management buy-out of the Birmingham Post and Mail and Coventry Evening Telegraph in November 1991, announced a fourfold increase in trading profits to Pounds 7.3m for the first half of 1992.

Midland Independent Newspapers Thomson Regional Newspapers GB United Kingdom, EC P2711 Newspapers COMP Acquisition P2711 The Financial Times London Page 16 125
UK Company News: Pittencrieff launches bid for Aberdeen Petroleum Publication 930315FT Processed by FT 930315 By PAUL TAYLOR

PITTENCRIEFF, the acquisitive Edinburgh-based oil and gas group, has launched a conditional Pounds 7.5m all-paper offer for Aberdeen Petroleum which is itself embroiled in a hostile takeover bid for fellow energy explorer, Brabant Resources.

The company said its offer is conditional upon Aberdeen's bid for Brabant not succeeding.

Under the terms of the bid Pittencrieff would swap two of its shares for every 49 Aberdeen shares. Pittencrieff's stock closed at 356p on Friday and the company claimed its offer values Aberdeen's shares at just over 14 1/2 p each. Aberdeen's stock was unchanged at 15 3/4 p ahead of the announcement.

Pittencrieff said it was making the offer in order to further expand its oil and gas development and production activities in the US and Canada where Aberdeen's assets are mostly sited.

The bid was immediately rejected as 'totally inadequate' by Aberdeen, which successfully fought off a takeover bid worth Pounds 5.5m from US rival Bellwether Exploration in January before launching its own hostile all-paper bid for Brabant last month.

Aberdeen claimed that the Pittencrieff bid represents a 47 per cent discount to its net assets, and that its combined reserves with Brabant would be 2.5 times those of Pittencrieff. Mr David Hooker, Aberdeen's managing director said: 'We remain convinced that the oil and gas sector should be consolidated in order to add value for shareholders. However, Pittencrieff's current offer completely fails to realise the full value of Aberdeen's assets.'

Pittencrieff's move had been widely expected since the company acquired a 16.6 per cent equity stake in Aberdeen at the end of January - a stake which has since grown to 19.1 per cent. The market has been expecting a rationalisation of the smaller UK oil 'minnows'.

In support of its bid Pittencrieff claimed that its offer represented a 73 per cent premium over Aberdeen's closing price on January 8, the day before Bellwether announced its abortive bid.

Pittencrieff Aberdeen Petroleum Brabant Resources GB United Kingdom, EC P1311 Crude Petroleum and Natural Gas P2911 Petroleum Refining COMP Acquisition FIN Share issues P1311 P2911 The Financial Times London Page 16 367
UK Company News: The risks of bluff and counter bluff - The concern surrounding GPA's Dollars 5.5bn restructure Publication 930315FT Processed by FT 930315 By ROLAND RUDD

GPA Group's shareholders and its banks are involved in a game of bluff and counter bluff.

At stake is the future of the aircraft leasing company which hopes to complete its Dollars 5.5bn (Pounds 3.87bn) restructuring by the end of the month.

Lenders to GPA have made it clear that the restructuring is dependent on investors taking part in a Dollars 200m rights issue of convertible preference shares. But some shareholders are having difficulty in taking the banks at their word. After all, what is Dollars 200m, asked one investor, to a group with debts of Dollars 5.5bn?

Most of GPA's banks have already agreed to support its plan of halving its borrowings over the next three years. GPA confidently expects others to follow suit in the next few weeks.

The aircraft manufacturers have also agreed in principle to cancel or change contracts, reducing firm orders for new aircraft from nearly Dollars 11bn to between Dollars 2bn and Dollars 3bn.

Having got this far, some shareholders doubt whether the banks would be willing to jeopardise the company's survival by saying no to a restructuring just because they failed to raise Dollars 200m.

The banks, however, say they could not be more serious in warning of the dire consequences if shareholders do not come up with the cash. By not taking up the convertible - which convert into shares at Dollars 1 - they would be saying something about the perceived price of the shares which most lenders do not want to hear.

As one of the bankers involved in the restructuring put it: 'If GPA's investors do not think it is worth subscribing for new shares at Dollars 1, with a yield of 7 per cent, then they are effectively saying they are not worth anything.'

One of the group's US shareholders has already effectively said this by writing off its entire GPA stake. Overseas Shipholding Group, one of the biggest publicly-quoted bulk shiping companies with a market capitalisation of Dollars 552m, is providing Dollars 13.1m against its GPA investment.

OSG reissued its fourth quarter results for 1992 to take the provision retroactively. As a consequence its net income for last year fell from the previously reported Dollars 29.1m to Dollars 16m.

Ms Catherine Mathis, director of OSG's corporate relations, said: 'The write-off of our investment was based upon information that recently became available'. Although she would not elaborate it is understood that the company was referring to GPA's decision to price its convertible preference shares at Dollars 1.

GPA's advisers have made it clear that the third attempt to raise cash in less than a year is the last. It is not as if they could come back with yet another proposed preference share issue with an even lower conversion price.

Nomura International, the Japanese investment house working on the convertible, has told shareholders that without their participation the banks will have no choice but to take effective control of the company. By not underwriting the issue Nomura, which itself has 1.75m GPA shares bought at an average of Dollars 20 a share, has made it clear that only shareholders' involvement can ensure the company's survival.

If the group was forced to abort the rights issue its lead banks might look at the possibility of reducing the burden of borrowings through a debt for equity swap. But with more than 100 banks involved in the restructuring the biggest lenders do not think they would stand a chance of winning approval.

Yet it is still not clear that investors will subscribe to the new shares.

Mr Jack Hersch, director of research at MJ Whitman, the Wall Street firm specialising in bank debt trading, said: 'GPA's new shares are being sold as an option on the basis that the company manages to survive without more restructuring. The low option price signifies the low likelihood of success.'

Nomura has accepted that around 80m of the shares will have to be marketed to new institutions. But existing GPA shareholders will have to subscribe for at least 120m new shares if the issue is to succeed.

The company must be hoping that a majority of its investors do not call the banks' bluff by refusing to take part.

GPA Group IE Ireland, EC P7359 Equipment Rental and Leasing, NEC CMMT Comment & Analysis FIN Share issues COMP Company News P7359 The Financial Times London Page 16 759
SE in move to sell information wholesale Publication 930315FT Processed by FT 930315 By RICHARD WATERS

THE London Stock Exchange is close to contracting out its Topic information system in a move designed to turn it into a wholesaler of stock market information, rather than a retailer. Together with its desire to hand over settlement to a new clearing house in the wake of the Taurus fiasco, this would leave London with a slimmed-down stock market authority with operations only around half of their present level.

The plan to contract out Topic, known within the exchange as 'Project Jupiter', has replaced earlier moves to sell what is the leading carrier of price information and news for the UK stock market. The exchange will benefit from a royalty from future profits on Topic, and could eventually sell it to the new operator.

Selling information and charging settlement fees last year contributed Pounds 101m of the exchange's Pounds 194m of income. By largely pulling out of these businesses, the institution - still reeling from its costly failure to complete the Taurus automated settlement system - would fall back on charging trading fees to its members and listing fees to companies.

The exchange intends to remain a low-cost wholesaler of share price information. It is planning to spend Pounds 18m on a new 'ticker plant' - to take share price information from the market's central computers and provide electronic information feeds to retailers such as Reuters and the new Topic operator.

'The board has taken the decision to exit the end-user terminal business,' said one director. 'The Topic base is under lots of pressure. Its system is old hat now.' The exchange is currently upgrading the Topic system, and is likely to want to continue to have an influence in its development once it is contracted out.

Telerate, the US provider of financial information, is believed to be the exchange's favoured contractor, although discussions are also continuing with the Swiss-based Telecurs and at least two other companies.

In spite of the blow to the stock market's morale caused by the abandonment of Taurus, believed to have cost the securities industry Pounds 400m or more, the exchange seems likely to move ahead with another ambitious technology project, to build a new trading system. This project, which is estimated to cost the exchange Pounds 75m, has already been attacked by some securities houses as a 'white elephant' on a par with Taurus. The exchange's board plans to review the system again at its next board meeting in April. Exchange chairman Sir Andrew Hugh Smith, and directors contacted by the Financial Times, all agreed that the so-called Technology Transformation Project would have to proceed if London's dominance of share trading in Europe was to be secured.

London Stock Exchange (UK) GB United Kingdom, EC P6231 Security and Commodity Exchanges P6289 Security and Commodity Services, NEC P7375 Information Retrieval Services MKTS Contracts COMP Company News P6231 P6289 P7375 The Financial Times London Page 15 497
Search for glittering prizes beneath the Canadian ice: Digging for diamonds in the frozen Northwest Territories Publication 930315FT Processed by FT 930315 By BERNARD SIMON

Anybody who works outdoors at this time of year in Canada's Northwest Territories must have a very good reason. Temperatures plummet as low as -400C, and feel even lower when fierce winds whip across the snow-covered Arctic tundra. A shovel's metal blade becomes so brittle that it is liable to snap when weight is put on it. Trucks and machinery must be kept running around the clock to prevent their engines freezing.

A group of drillers and geologists employed by BHP, the Australian steel and mining group, are braving these conditions on a frozen lake 310km north-east of Yellowknife. Shielded from the wind by tarpaulins, they are working 12-hour shifts, day and night, around two 15-metre high drilling rigs. The men have five days of emergency rations in case blizzards cut them off from their base camp 4km away.

By the time the ice starts melting in late April, the drills will have extracted 400 tonnes or more of kimberlite rock from beneath the lake, and at least one other site nearby. BHP and its partners are confident that the samples will contain enough high-quality gems to move towards construction of North America's first diamond mine.

Mr Hugo Dummett, BHP Minerals' exploration manager in North America, says he will be disappointed if a mine does not materialise. 'We're minimising our chances of failure,' he says. BHP, which would have a 51 per cent stake in the project, plans to spend at least CDollars 3m (Pounds 1.68m) on the drilling programme this year.

Mr John Lydall, mining analyst at First Marathon Securities in Toronto, said if a mine was built, it could supply about 7 per cent of the world's diamond market.

The hunt for diamonds in the Northwest Territories has turned into one of the biggest stampedes in North American mining history. Besides BHP, a cluster of companies ranging from heavyweights such as De Beers and Kennecott, to junior exploration outfits such as Kalahari Resources, have staked claims covering 103,600sq km, an area about the size of Portugal. One timber supplier in Yellowknife said it has sold 210,000 wooden stakes in the past 12 months to mining companies, compared with 25,000 in a normal year.

The staking frenzy is reflected in the share prices of some of the players: Dia Met Minerals, BHP's Canadian partner, now has a market value of almost CDollars 450m, with its share price zooming up from less than a dollar in late 1991 to CDollars 43 now. Two French banks, Societe Generale and Credit Lyonnais, are in the process of buying CDollars 13m worth of Dia Met stock.

The story of diamond fever in the frozen north goes back to the early 1980s when Mr Dummett, who then worked for Superior Oil, was tipped off by a bush pilot that De Beers was prospecting along the Mackenzie River. Under cover of darkness, Mr Dummett and Mr Charles Fipke, a Canadian geologist and Dia Met's founder, landed a helicopter close to the De Beers camp and picked up some samples.

Over the next few years, the search moved eastward towards the source of the vast ice sheet which millions of years ago scraped up - and then deposited - metal-bearing rocks across northern Canada.

The BHP-Dia Met joint venture, which was formed in 1990, made a breakthrough in late 1991 in the Lac de Gras area, 350km east of the Mackenzie River. Samples from a kimberlite pipe beneath Point Lake yielded 101 carats of diamonds, equal to about 70 carats per 100 tonnes, which is well above the grade normally required to justify a mine.

The purpose of this winter's drilling programme is to extract bigger samples from other kimberlite pipes on BHP's 875,000 acre claim. The frozen samples are transported by truck to a Dia Met processing laboratory in Colorado. The results will be made known later this year.

BHP wants to have a sample of at least 2,000 carats before it decides whether to press ahead with construction of a mine.

The partners are already confident that the quantity of diamonds in the Lac de Gras kimberlite pipes is sufficient to support a mine milling around 10,000 tonnes of ore a day. Their optimism is based largely on the results of research by Professor John Gurney, a geo-chemist at the University of Cape Town.

Prof Gurney's theory, which appears to be supported by almost every diamond discovery around the world, is that a kimberlite pipe is virtually certain to contain diamonds if the purple-grey garnets in the pipe combine a high chrome content with less than 4 per cent calcium. According to the BHP team, the calcium content of the garnets found around Lac de Gras is 0.7 per cent or lower.

What still remains to be established however, is the quality of the Lac de Gras diamonds. According to Mr Fipke, 'we can predict diamond grades. But no one can predict the per cent of gem quality.' Roughly one out of 200 kimberlite pipes contain diamonds, but only one in 20 of those has a high enough proportion of gemstones to justify a mine.

The Northwest Territories diamond rush may yet come to naught. In spite of the excitement, mining analysts caution that the shares of the companies involved are for speculators only.

But if all goes well at Lac de Gras, BHP and its partners could have a mine in operation by 1997 or 1998. They are unconcerned by the recent glut in the world diamond market.

With many of the alluvial mines on the west coast of southern Africa as well as the big Argyle property in Australia likely to run out of stones within the next decade or so, the hope is that any new mines in the Northwest Territories will come on stream at just the right time.

BHP Minerals Dia Met Minerals CA Canada P1499 Miscellaneous Nonmetallic Minerals CMMT Comment & Analysis RES Natural resources TECH Standards P1499 The Financial Times London Page 15 1021
Lopez shuns VW by staying at GM Publication 930315FT Processed by FT 930315 By DAVID WALLER and PATRICK HARVERSON FRANKFURT, NEW YORK

THE TUG-OF-WAR between General Motors and German rival Volkswagen over the services of Mr J. Ignacio Lopez de Arriortua, the former head of worldwide purchasing at the US carmaker, appeared resolved yesterday when GM said Mr Lopez would not be leaving the company. A GM spokesman said: 'I can confirm that he will be staying at GM.'

The announcement came just three days after Mr Lopez apparently delivered a blow to GM by unexpectedly resigning his position. At the time, it was reported that he was leaving to join the board of Volkswagen.

Reflecting VW's dismay at the decision, the German carmaker yesterday blamed GM for putting pressure on Mr Lopez to stay. Mr Ferdinand Piech, VW chief executive, said Lopez had come under 'persistent interventions' from GM colleagues and the pressure for him to stay had proved impossible to resist.

Mr Lopez's decision to stay at GM will be a big boost to the US company. He had been the key figure in a drive by GM to cut its costs through a radical reorganisation in the way it buys parts in North America.

VW said that at Mr Lopez's request his contract of employment with VW, which both sides had already signed, was to be set aside. Under the terms of the contract, which was to have been ratified at a meeting of VW's supervisory board tomorrow, Mr Lopez was to have started work at VW's Wolfsburg headquarters within a matter of weeks. 'What was originally on the agenda for (tomorrow's) board-meeting in relation to Mr Lopez is no longer on the agenda,' said Mr Ortwin Witzel, VW press spokesman yesterday.

Mr Witzel said that both Mr Lopez and VW had agreed to talk about Mr Lopez's future with the European company later in the year. This may 'perhaps' lead to a decision to employ Mr Lopez later in the year, Mr Witzel said. It seems unlikely, however, that Mr Lopez would continue to work at GM while entertaining the possibility of moving to work for a competitor.

Mr Lopez is credited with giving GM's European operations the most competitive cost structure of any European volume carmaker while VW labours under probably the worst cost structure.

General Motors Corp Volkswagen US United States of America DE Germany, EC P3711 Motor Vehicles and Car Bodies PEOP Personnel News P3711 The Financial Times London Page 15 418
Economics Notebook: A map to put Sweden on the path to recovery Publication 930315FT Processed by FT 930315 By CHRISTOPHER BROWN-HUMES STOCKHOLM

Sweden's political and economic woes were on full display last week, with the government plunged into crisis over its budget proposals and a string of large companies reporting huge losses. Aside from the risk of a summer general election, which will take place if the government loses a confidence vote on Wednesday, there is deepening gloom about the economy's prospects for early recovery.

There could hardly have been a better time then for the independent panel of economists, led by Professor Assar Lindbeck, to present its analysis of the deep-seated problems in the Swedish economy. Commissioned by the government in December, just three weeks after the government was forced to float the krona, the report's task was to map out a course to sustainable economic recovery.

It pulls few punches in its analysis of Sweden's economic plight. As symptoms of the malaise, it cites a 10 per cent drop in industrial production in 1990-91, an unemployment level of 12 per cent (if various training schemes are included) and a budget deficit in the current fiscal year of about SKr200bn (Pounds 18.2bn), or 13 per cent of GDP.

'We are in a very deep crisis and the worst lies ahead of us,' said Professor Lindbeck, 'It will be a long and painful process before several decades of mistakes and recklessness can be put to rights.'

The report is nothing if not comprehensive. It presents no fewer than 113 recommendations, calling for radical reform of the political and economic system, and covering everything from income policy to lengthening the school day. Although it gives some proposals more weight than others, it urges them to be considered as a whole.

The banking crisis, the budget deficit and unemployment are identified as top priorities. The commission broadly endorses Sweden's current monetary strategy, calling for the central bank to continue its policy of cautiously lowering interest rates, rather than adopting the UK approach of sharp and rapid cuts. To follow the UK example, it says, would risk inflation and reduced domestic demand.

But it is highly critical of current bank borrowing charges, which it says are doing more to cripple small business than high money market rates. This requires a quick resolution of the financial crisis, because banks are charging borrowers high rates to rebuild capital bases ravaged by huge credit losses. The shake-up requires new capital as well as new competition, including from foreign banks. Where the state has to take over a bank, the good and bad parts should be promptly separated, with the good part being sold back to the market within a year.

As far as the budget deficit goes, the report warns that on current trends Sweden's public debt: GDP ratio is set to reach 70 per cent by the turn of the century. It therefore calls for further savings of up to SKr70bn in the next five years to stabilise debt at 40-50 per cent of GDP by 1998. Most of these savings would have to fall on the years from 1995 onwards, simply because the economy is currently too weak to absorb more cuts. To help with the savings programme, further reductions in Sweden's welfare payments are proposed, including cuts to sickness and unemployment benefits.

High long-term unemployment is identified as the most serious risk for Swedish society. But Professor Lindbeck also wants the country to get better value for money out of the SKr90bn a year which it already spends on the problem. That means cutting the pay within some schemes and shifting towards less expensive programmes.

What the report does not recommend is any general reduction in Swedish tax levels - significant in that this was an important plank of policy when the centre-right minority coalition government, under prime minister Mr Carl Bildt, came to power in 1991. But the omission only emphasises the seriousness of the country's financial position, which has already forced the Bildt government to abandon its tax-cutting plans.

The commission is as insistent on the need for political reform as it is for economic change. It calls for an extension of government's current three-year mandate period, fewer MPs and standing committees, a strengthening of the budget process and reduced interest group influence over policy. It presents a timetable for very little of the package, but makes it plain that time is not on Sweden's side.

Professor Lindbeck is a respected economist both at home and abroad, as well as being the head of the committee which chooses Nobel Prize winners in economics. There is no doubt that his views carry weight. But will they be implemented?

Officially, the report now goes out to consultation to give a wide range of different organisations the opportunity to present their comments before it is reconsidered by the government later in the year. Unofficially, the government is free to act on its recommendations much earlier, possibly incorporating some of them in next month's supplementary budget.

Most of Sweden's leading economists believe the report comes up with the right measures to revitalise the country's economy. The reception given to it by politicians and various interest groups last week was predictably more mixed. The government was certainly enthusiastic, saying it provided strong support for its existing policies. Even the opposition Social Democrats appeared to go along with much of it, although they did not like what it had to say about labour market reform. Only the unions appeared to be overtly hostile.

One danger is that only the 'easy' parts of the programme will be implemented, not the painful ones. Another is that the recommendations are not carried out as swiftly as the commission feels they should be.

A more immediate risk, however, is that the current political turmoil will distract attention away from proper consideration of the document. Given the extent of Sweden's economic difficulties, the country can ill afford three months of uncertainty which a summer election would entail.

SE Sweden, West Europe P9611 Administration of General Economic Programs P9311 Finance, Taxation, and Monetary Policy CMMT Comment & Analysis P9611 P9311 The Financial Times London Page 15 1032
Companies in this issue Publication 930315FT Processed by FT 930315

------------------------------------------------------ UK ------------------------------------------------------ Aberdeen Petroleum 16 Airtours 16 GPA Group 16, 15 Kosset Carpets 16 Midland Ind News 16 Owners Abroad 16 Pittencrieff 16 Platon Intnl 16 Wills Group 16 ------------------------------------------------------ Overseas ------------------------------------------------------ Comptoir 17 Deutsche Telekom 17 General Motors 15 IRI 17 Promodes 17 Shaw Industries 16 Sotheby's Holdings 16 Stet 17 Volkswagen 15 ------------------------------------------------------

XA World P99 Nonclassifiable Establishments COMP Company News P99 The Financial Times London Page 15 80
GPA seeks outside investors for share issue Publication 930315FT Processed by FT 930315 By ROLAND RUDD and ROBERT PESTON

GPA GROUP is looking for outside 'strategic investors' to take up to 40 per cent of the Dollars 200m convertible preference share issue necessary for its survival.

Nomura International, the Japanese securities house, the aircraft leasing company's leading adviser on the rights issue, has told it that its existing shareholders are unlikely to subscribe more than 120m of the 200m convertibles on offer. These effectively value the shares at Dollars 1, compared with a price less than a year ago of Dollars 30.

Nomura has asked shareholders to give indicative responses before Friday, when the group's temporary waivers of the banking covenant breaches expire.

According to one of GPA's banks, around 80 per cent of the group's lenders have agreed to the Dollars 5.5bn (Pounds 3.8bn) debt restructuring proposals, but only on condition that the preference issue takes place.

The company needs the debt restructuring to be completed soon so that it can raise finance in the bond markets.

Many of GPA's shareholders have indicated that they are unlikely to take part in the issue unless an outside institution invests in the company. Shareholders are also watching whether the company's four biggest investors, with 35 per cent, support the issue. One shareholder said: 'Everyone is waiting to see how the big four jump. No one wants to be first to put up any money.'

Bluff and counter bluff, Page 16

GPA Group IE Ireland, EC P7359 Equipment Rental and Leasing, NEC FIN Share issues P7359 The Financial Times London Page 15 270
Embattled Yeltsin weighs options Publication 930315FT Processed by FT 930315 By JOHN LLOYD and SIMON HOLBERTON MOSCOW, HONG KONG

MR BORIS YELTSIN, the Russian President, retreated to his country dacha yesterday to consider his political future following his bruising battle with the country's supreme parliament, the Congress of People's Deputies.

Government sources yesterday said Mr Yeltsin had little choice but to proceed with a controversial referendum or plebiscite on the country's constitutional future, in the face of congressional opposition.

Many of Mr Yeltsin's radical ministers are in favour of the declaration of presidential rule, and the carrying of their campaign to reform the economy to the country. However, the powerful heads of Russia's regional authorities, who would normally organise the holding of a referendum and who have already expressed their opposition to it, are now increasingly sceptical of the president's authority.

Senior US administration officials have suggested that the US would not formally object if Mr Yeltsin resorted to special powers, including the suspension of the parliament, but would draw the line at a military crackdown.

The Congress, led by Mr Yeltsin's rival Mr Ruslan Khasbulatov, ended a stormy session on Saturday after voting which appeared to give it the upper hand in the struggle with the president over who rules Russia.

On Saturday the Congress adopted a resolution condemning the President for 'adventurism' and has asked the smaller Supreme Soviet to vote on further limits on presidential power, on early elections, and on parliamentary control of television, radio and the main news agency Itar-Tass.

Mr Yeltsin is expected to address the country today, although the main television channel has been on the alert for such a broadcast since Friday, when he strode out of the Congress after it defeated his request for an April referendum.

Russia yesterday urged the Group of Seven industrialised countries to target their aid in such a way that Mr Yeltsin's reforms could be seen to be working, said officials close to a G7 'sherpas' meeting in Hong Kong.

G7 officials said Russian deputy prime minister Mr Boris Fyodorov's message was well received by the meeting, the first gathering of 'sherpas' before the G7 Tokyo Summit in July. One European official noted: 'Balance of payments support and debt relief do not translate into things people can see.'

However, officials said they would have to report back to respective governments and take account of an International Monetary Fund investigation of the Russian economy, under way in Moscow, before any concrete initiatives could be contemplated.

Cautious US backing, Page 2 Battles for reform, Page 28

RU Russia, East Europe P9111 Executive Offices P9121 Legislative Bodies P9721 International Affairs GOVT Government News P9111 P9121 P9721 The Financial Times London Page 14 452
Lamont to act on project funding: Budget statement likely to ease logjam on private-sector financing Publication 930315FT Processed by FT 930315 By ANDREW TAYLOR and ALISON SMITH

MR Norman Lamont, the chancellor, is expected to act in tomorrow's Budget statement to answer concern in the construction and banking sectors that the Treasury has been slow to approve projects involving private sector investment in public sector projects.

He is widely expected to refer to the Pounds 300m plan by British Rail and BAA, the airports operator, to build an express rail from London to Heathrow airport. He may announce other projects.

Construction companies and investment bankers have become frustrated by the length of time it is taking to get projects approved, and are concerned that there is a gulf between the Treasury and potential investors over what should constitute a reasonable balance between risk and reward.

Officials and ministers outside the Treasury are irritated that despite fresh impetus given to the initiative by Mr Lamont in the public spending statement last November, little progress has been made on schemes which have been put forward.

They accept that the new Treasury guidelines on private finance were published only in December, but believe some suggestions are being dismissed without being given proper consideration.

In particular, there is concern over the Birmingham western orbital toll road, where the government has indicated that it might allow joint funding arrangements. The four interested consortia say they have been waiting for specific proposals since the autumn statement.

Mr Patrick de Pelet head of project finance at Kleinwort Benson merchant bank, said: 'There is a lack of momentum and a danger that companies which have invested large sums of money gaining experience and building up teams could become disenchanted.

'A lot of other countries are looking to finance infrastructure investment privately. British companies and banks have a good track record in this field and it is important that this reputation be maintained. Opportunity for much needed infrastructure at home and export orders abroad, could be lost.'

Mr John Hackett, director general of the Federation of Civil Engineering Contractors, said the industry had appeared to be making real progress when the Treasury published its guidelines permitting private companies and public authorities to invest jointly in projects.

'Since then there have been plenty of suggestions but no real progress. It is not clear who is in charge of the private finance initiative.'

The Treasury vehemently rejects this criticism, emphasising that talks are progressing on how the initiative might apply in the health and prison services and that some Scottish schemes, including a proposal for a privately financed Forth road bridge, have been announced.

Two options for rail link, Page 6

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy GOVT Government spending P9311 The Financial Times London Page 14 469
Jobseekers over the hill at 45, says survey of advertisements Publication 930315FT Processed by FT 930315 By DIANE SUMMERS, Labour Staff IF YOU'RE over 45, don't bother to apply

that is the message from UK employers to jobseekers, according to an analysis of more than 4,000 job advertisements.

Almost a third of advertisers specified an age bar, an increase from a quarter four years ago when the independent research group, Industrial Relations Services, last monitored job advertisements. Four out of five employers giving an age preference wanted someone under 45.

Even companies describing themselves as 'equal opportunity' employers in job advertisements appeared willing to exclude some candidates on the grounds of age.

IRS cites a Nissan Motor (GB) advertisement for a personnel controller and a management development controller where the 'successful candidates will be aged about 25', Pearl Assurance wanted a training manager 'in their early to mid-thirties' and Group Four Total Security was looking for a 'personnel professional aged 25-40'.

The Institute of Personnel Management strongly discourages members from imposing age bars.

In a guidance note it states: 'It does not make good business sense deliberately to exclude suitably qualified candidates on the basis of age.'

Although 1993 is the European Year of Older People, a recent European Commission advertisement spotted by IRS insisted that candidates for the job of administrative assistant should 'have been born after October 9 1956'.

The Commission's justification is that it wants to hold on to employees for several years.

Age discrimination: no change, Equal Opportunities Review No. 48, March/April 1993. IRS, 18-20 Highbury Place, London N5 1QP. By subscription

GB United Kingdom, EC P99 Nonclassifiable Establishments MGMT Management PEOP Personnel News P99 The Financial Times London Page 14 284
The Lex Column: Volkswagen Publication 930315FT Processed by FT 930315

Tomorrow's meeting of Volkswagen's supervisory board will reveal how far the company is prepared to go to catch up speedier rivals. Although VW's consensual style enabled it to grow into the biggest European car manufacturer, it has lately stifled its response to the industry's rapidly-changing dynamics. VW's failure to change out-dated working practices has left it perilously exposed as Europe's car market lurches downwards. Its European sales could fall by 340,000 units this year.

VW's new chief executive, Mr Ferdinand Piech, has signalled a fearsome intent to tackle VW's problems head-on. He has been assembling a strong management team, although the last minute failure to appoint Mr Ignacio Lopez de Arriortua, who was credited with turning round General Motors' European operations, is a big setback. There may be old-guard departures at senior level, but what matters most tomorrow is whether Mr Piech can at last produce a concrete plan for quickly cutting labour costs. Only that will show whether he has persuaded the trade union and regional government officials on VW's board of the need for drastic redundancies. The sense of crisis at VW may be his greatest ally.

Unlike many of its rivals, VW's balance sheet is in reasonable shape. German car sales may fall 20 per cent this year, but they would still exceed those of 1990. Having already come to terms with the prospect of a dividend cut, the stock market may be right in anticipating better times ahead.

Volkswagen DE Germany, EC P3711 Motor Vehicles and Car Bodies CMMT Comment & Analysis MGMT Management P3711 The Financial Times London Page 14 275
The Lex Column: Lloyd's insurance Publication 930315FT Processed by FT 930315

The exodus of Names from the Lloyd's insurance market has squeezed the agencies which stand between them and underwriters. Sturge and A J Archer, the two quoted agencies, underperformed the stock market by 90 per cent over the last five years. Their response to plunging commission income has been consolidation: witness last week's acquisition by Archer of the unquoted Castle Holdings. The deal allows Archer to spread the cost of developing technology for analysing the performance of underwriting syndicates. If the reforms under consideration allow companies to commit capital to Lloyd's, such expertise may be a matter of survival.

But there are pitfalls in empire-building. In a litigious business like Lloyd's, acquiring other agencies - contingent liabilities and all - can be risky. Big agency groups must also be wary of conflicts of interest. Both Archer and Sturge now own managing agents which act for underwriters, and members' agents which represent the interests of Names. The last round of Lloyd's legislation stopped insurance brokers owning managing agents. The coming proposals may demand a root and branch reform.

So long as the market is shrinking, though, Lloyd's agencies will be under pressure to take out costs. That points to further mergers. Sturge and Archer can pay for unquoted rivals with quoted paper. Consolidation alone will not bring a reversal of fortunes. That requires a return to underwriting profits. But whatever structure emerges for Lloyd's, the strong will be best placed to benefit.

Lloyds of London AJ Archer Holdings Sturge Holdings GB United Kingdom, EC P6411 Insurance Agents, Brokers, and Service CMMT Comment & Analysis P6411 The Financial Times London Page 14 281
The Lex Column: British Gas Publication 930315FT Processed by FT 930315

If there is a case for breaking up British Gas into many competing companies, Sir James McKinnon has not made it. Ofgas's submission to the Monopolies and Mergers Commission was long on diagrams but short on numbers and its protestations that the proposed structure would cost only Pounds 250m a year look implausible. Equally, British Gas has failed to persuade that it deserves to be preserved as a 'national champion'. Its arguments that a break-up would be unsafe and an administrative nightmare are thin and self-serving. British Gas has a nasty history of championing the status quo in the interests of British Gas.

So it sticks in the craw to go along with the company. Yet with the advantages of a break-up highly uncertain there is a case for settling nearer the company's position than Sir James's. Some of the nastier political questions - such as the obligation to supply small consumers that no-one really wants - might be avoided. A tight price cap will squeeze costs out of the business. Stronger Chinese walls within the company would make it easier to break up later if insufficient competition flows through.

On one issue, however, everyone seems to be wrong. Cheap interruptible gas supplies to large industrial customers are really needed because of variations in demand from domestic users. The costs and benefits should be considered together and priced against the alternative of increased storage capacity.

British Gas GB United Kingdom, EC P4923 Gas Transmission and Distribution P9631 Regulation, Administration of Utilities CMMT Comment & Analysis P4923 P9631 The Financial Times London Page 14 274
The Lex Column: The franc marks time Publication 930315FT Processed by FT 930315

If the doom-mongers were to be believed, we should have been in the middle of another ERM crisis now that the French election is approaching. That the strains on the system have been limited is in part due to the troubles of Mr Boris Yeltsin which have conveniently depressed the D-Mark. Some pressure on the franc has been masked by intervention, particularly on Friday morning. Above all, expectations of a cut in Germany's official interest rates have held the more timid speculators at bay. That means, though, that this Thursday's Bundesbank council meeting has assumed increased importance whether the bank likes it or not.

Some recent statements from bank officials suggest it regards the quarter point cut in its money market repurchase rates as enough for the time being. But, given expectations this cut has engendered, the disappointment if there is no follow-through would be significant. The bank would be sending a powerful signal that it would only cut rates slowly despite the deterioration in the German economy.

That could immediately expose the French currency to speculative pressures that are currently more repressed than cured. It might also revive the debate over how long other ERM countries can survive with real interest rates far too high for the good of their economies. Last week again saw rumblings of concern in Portugal and Spain, while it is striking that, even after devaluation, Ireland still has to endure short-term interest rates of 11.5 per cent. It was always the case that the clouds over the ERM would lift only when the Bundesbank finally took decisive action on rates. It has not done so yet.

QR European Economic Community (EC) P6231 Security and Commodity Exchanges P9311 Finance, Taxation, and Monetary Policy P9721 International Affairs MKTS Market data CMMT Comment & Analysis P6231 P9311 P9721 The Financial Times London Page 14 319
International Company News: Blackstone drops offer for Canadian food distributor Publication 930313FT Processed by FT 930615 By ROBERT GIBBENS MONTREAL

BLACKSTONE GROUP, the New York investment bankers, has dropped its CDollars 1.03bn (USDollars 828m) offer for all the shares of Univa, Canada's second biggest food distributor.

The bid, set at CDollars 11 per Univa share, was structured so that a new company 80 per cent owned by Blackstone and 20 per cent by Montreal entrepreneur Mr Bertin Nadeau would have merged with Univa.

Mr Nadeau, who owns 26 per cent of Univa and is its largest single shareholder, would then have had a 20 per cent stake, with the option of buying back control within seven years.

The Caisse de Depot, the CDollars 41bn Quebec public pension fund which owns 17 per cent of Univa, objected saying the merger would have doubled Univa's debt to CDollars 1.25bn, endangering its future survival. All shareholders were not being treated in the same way and CDollars 11 a share was too low, it said.

Blackstone Group Univa Inc Blackstone Group CA Canada P5149 Groceries and Related Products, NEC P6211 Security Brokers and Dealers COMP Mergers & acquisitions P5149 P6211 The Financial Times London Page 12 201
International Company News: American Express in Dollars 1bn disposal Publication 930313FT Processed by FT 930325 By ALAN FRIEDMAN NEW YORK

AMERICAN EXPRESS, the troubled financial services and travel group, yesterday formally announced the Dollars 1bn sale of the retail broking and asset management businesses of its Shearson Lehman arm to Mr Sandy Weill's Primerica financial services group.

The deal will lead to the creation of Smith Barney Shearson after Primerica merges its Smith Barney securities subsidiary with Shearson. The combined entity will have more than Dollars 112bn of assets under management, 10,500 brokers and almost 500 branch offices.

As a result Mr Weill is now in a position to challenge Merrill Lynch's position as the leading US brokerage house.

The deal will cause first quarter write-offs at American Express of about Dollars 730m for transaction-related costs such as severance, relocation and systems modifications plus a write-down of Dollars 750m in Shearson's goodwill.

American Express stressed that the first-quarter losses it expects to suffer on the Shearson deal would be offset in part by the previously announced plan to sell The Boston Company for Dollars 1.47bn and anticipated gains from the sale of Dollars 1bn of stock representing majority control of First Data Corporation, the group's data processing subsidiary.

The Shearson takeover was hailed on Wall Street yesterday as a coup for Mr Weill, who built Shearson in the 1970s and sold it to American Express in 1981 for Dollars 900m. Following this deal, Mr Weill became the president of American Express, only to resign in 1985.

The 59-year-old Mr Weill, who yesterday named Mr Frank Zarb, Smith Barney's chairman, to head the new brokerage house, has agreed to pay American Express Dollars 850m in cash, Dollars 125m in Primerica convertible preferred stock and Dollars 25m in Primerica common equity warrants.

In addition, Primerica will pay American Express future contingent amounts based on the new unit's performance - up to Dollars 50m a year for three years plus 10 per cent of after-tax profits that exceed Dollars 250m a year over the next five years.

Primerica will finance the deal by issuing Dollars 550m of new debt securities and Dollars 500m of equity-equivalent securities.

Lehman Brothers is not part of the Primerica deal, but American Express said yesterday that among its options would be a public share offer of Lehman stock.

Shearson Lehman last year suffered Dollars 116m of losses. Smith Barney last year had Dollars 170.1m of earnings.

Mr Harvey Golub, the American Express chief executive who took over last month after the departure of Mr James Robinson, yesterday moved quickly to outline a new group strategy that will focus on a leaner business based on its three main subsidiaries.

American Express Primerica Corp Smith Barney Shearson Shearson Lehman Brothers Holding Inc US United States of America P6211 Security Brokers and Dealers COMP Disposals P6211 The Financial Times London Page 12 481
(CORRECTED) Briefcase, Q&A: Claim for discount Publication 930313FT Processed by FT 930323

Correction (published 20th March 1993) appended to this article.

MY WIFE owns a small cottage which is registered in her name. I believe she is entitled to a 50 per cent council tax discount on it as 'a second home.' But the local authority claims that 'a property which is not a sole or main residence but is furnished will not be subject to a discount,' according to a decision taken by the council. This appears to contravene the literature published by the Department of the Environment?

While you would be entitled to a rebate on an empty property (for up to six months), the property is not regarded as empty while it remains furnished; hence, the council would appear to be correct. This is not a decision 'taken by the council' but an application of the rules which govern the new council tax.

No legal responsibility can be accepted by the Financial Times for the answers given in these columns. All inquiries will be answered by post as soon as possible.

CORRECTION

The owner of a second home in England or Scotland will be entitled to a 50 per cent discount from the council tax. Special rules applying in Wales mean that the district council can decide whether to apply a discount of 50 per cent, or 25 per cent, or none at all. An answer published last week about this issue was incorrect.

GB United Kingdom, EC P9121 Legislative Bodies P6514 Dwelling Operators, Ex Apartments GOVT Taxes P9121 P6514 The Financial Times London Page VIII 235
London Stock Exchange: Sears easier Publication 930313FT Processed by FT 930318 By CHRISTOPHER PRICE, JOEL KIBAZO and STEVE THOMPSON

Long-standing rumours that the Fayed brothers might be seeking to place their 10.5 per cent stake in Sears, the high street retailing group, resurfaced yesterday. Dealers reported that one leading securities house had been approaching institutions in what seemed to be a pre-placing exercise. Some market traders believed the Fayed Brothers, owners of the House of Fraser group, want to use the proceeds of a Sears placing to fund a hotel building programme. The share price weakened 2 to 97p in turnover of 2.4m.

However, analysts were somewhat dismissive of the reports, largely on the grounds that the Fayeds, who paid around 140p apiece for their shares six years ago, would be unlikely to accept such a large loss. A spokesman for House of Fraser also dismissed the rumour, asserting that the Fayed brothers remained long-term investors in Sears. No one was available for comment at Sears.

A substantial and unreservedly bullish research document from BZW, joint broker to Zeneca, the intended pharmaceutical arm of the demerged ICI, helped drive shares in the blue chip chemical group sharply higher in an otherwise depressed stock market. The shares also benefited from impact of several institutional presentations by ICI itself.

Income funds were also said to have been supporters of the shares which go ex the 34p dividend on Monday.

The BZW health and household team described the Zeneca demerger from ICI as a 'bold initiative, already benefiting shareholders and company alike, the former from a steadily rising share price as demerger benefits unfold, the latter from a sharper management focus'. ICI closed 9 higher at 1272p.

The market was caught on the wrong foot by Pilkington's purchase of Heywood Williams' glass merchanting business. Dealers had braced themselves for a series of profits downgrades earlier in the week after Pilkington called in a number of selected analysts for a briefing.

The deal was accompanied by Heywood's preliminary figures, showing a steep decline in profits but a maintained dividend. The market's reaction was to mark Heywood shares sharply higher on the view that the board had achieved a good price for the assets. They closed a net 53 higher at 239p after turnover of 4.7m shares. Pilkington closed 7 higher at 108p on turnover 6.5m.

Shares in Thorn EMI weakened for a second session as rumours of problems with one of its US subsidiaries combined with some technical selling pressure. There were suggestions from New York that an official inquiry might be launched into Rentacentre, Thorn's US subsidiary. The company rents and sells white goods, but, according to analysts, has come in for criticism over disclosures to potential customers of rates and terms. The shares closed 8 adrift at 853p.

The steep fall on the Hong Kong market upset HSBC, which was also affected by a bout of nervousness ahead of Monday's preliminary figures. It dropped 37 to 604p. Cable & Wireless dipped 10 to 713p. Inchcape fell 26 to 583p. Around 32 per cent of the company's 1991 earnings came from the Far East. Standard Chartered on the other hand, rallied strongly from an initially depressed 694p to close a net 11 higher at 714p.

Bass rebounded from its recent underperformance as Kleinwort Benson turned from seller to hold.

Activity in the traded options market focused interest on Forte as one institution decided that the hotel group's results next month could prompt a volatile time for the shares. Forte was the top traded option, with the equivalent of over 3m shares traded. In the equity market, the shares shaded 3 to 203p in turnover of 3.3m.

In a largely resilient stores sector, Storehouse responded to positive pressure from NatWest Securities, the shares up 2 to 192p.

Hopes of debt restructuring plans boosted ADT and the shares put on 25 to 463p.

Among engineering and aerospace stocks, TI Group, which raised the dividend this week as it reported figures, was in demand and the shares added 5 to 321p in trade of 4.4m.

Sears Zeneca Imperial Chemical Industries Heywood Williams Pilkington Bass GB United Kingdom, EC P28 Chemical & Allied Products P20 Food & Kindred Products P32 Stone Clay Glass & Concrete Products P34 Fabricated Metal Products P53 General Merchandise Stores P5661 Shoe Stores P5311 Department Stores P28 P20 P32 P34 P53 P5661 P5311 The Financial Times London Page 15 722
International Company News: Judge turns NY Post over to property developer Publication 930313FT Processed by FT 930313 By ALAN FRIEDMAN

A NEW YORK bankruptcy judge yesterday turned over The New York Post, the loss-making tabloid newspaper, to Mr Abe Hirschfeld, a local property developer, following a four-hour court hearing.

The hearing had been called to discuss the finances of Mr Steven Hoffenberg, the owner of a debt collection agency who for the past few weeks has seemed ready to take over the newspaper.

After more than a dozen lawyers appeared and the court was rocked by frequent laughter, Judge Francis Conrad ruled that Mr Hirschfeld was in a better financial position to save the newspaper, which has run out of operating capital.

Mr Hoffenberg, who was earlier viewed as the paper's saviour, has had problems lately in the wake of a legal victory by the Securities and Exchange Commission (SEC). The SEC accused Mr Hoffenberg of fraud and won control of Towers Financial, a company he controls.

US United States of America P2711 Newspapers PEOP Personnel News GOVT Legal issues P2711 The Financial Times London Page 12 186
International Company News: Upjohn wins Texas ruling Publication 930313FT Processed by FT 930313 By KAREN ZAGOR NEW YORK

UPJOHN, the US pharmaceuticals company, yesterday received a favourable verdict in a court case related to the safety of its Halcion sleeping pill, writes Karen Zagor in New York.

A jury in Texas found no liability on the part of Upjohn or its co-defendant, a physician who prescribed the product. In the case Mr William Harley alleged he had been stabbed by an assailant acting under the influence of the drug.

Halcion was banned in the UK last year. Sales have fallen sharply, although it still has approval for US marketing.

Upjohn US United States of America P2834 Pharmaceutical Preparations TECH Safety GOVT Legal issues P2834 The Financial Times London Page 12 130
International Company News: Court in US dismisses O&Y case Publication 930313FT Processed by FT 930313 By ROBERT GIBBENS MONTREAL

A COURT in New York has dismissed Olympia & York's Chapter 11 bankruptcy case, allowing its Canadian restructuring to be consummated by the March 15 deadline, writes Robert Gibbens in Montreal.

O&Y will now emerge from Canadian bankruptcy court protection. O&Y had filed for US Chapter 11 protection in respect of certain US properties. It later asked the court for a dismissal to satisfy creditors.

In Canada a court-appointed administrator will now take charge of the property company and an unsecured creditors' monitoring committee will assume its duties.

O&Y's Canadian creditors had refused to consummate the Canadian restructuring while the US Chapter 11 case was outstanding. In Canada creditors are already seizing O&Y buildings to satisfy debt and the Reichmanns have already ceded operating control.

Olympia and York Developments CA Canada P1531 Operative Builders COMP Company News P1531 The Financial Times London Page 12 163
UK Company News: London Electricity quits retailing Publication 930313FT Processed by FT 930313 By ANDREW ADONIS

LONDON Electricity yesterday became the first of the privatised electricity companies to withdraw completely from retailing. It announced a management buy-out of part of its loss-making retail business and closure of the rest.

The Pounds 6m buy-out, headed by Mr Clive Vlotman, London Electricity's retail operations controller, will cover 66 of the company's 96 retail units - 19 stores and 47 retailing concessions granted to Debenhams, the high street retailer. Capita Corporate Finance is providing the funding.

Of the remaining stores, 17 will close and 13 will be converted to customer service centres, to add to the 18 centres already operating.

London Electricity's 1992-93 results will show an exceptional charge of about Pounds 20m to cover the cost of the withdrawal, including a write-off of fixed assets and a discount to the MBO for existing stock.

In 1991-92 the retail business incurred a pre-tax loss of Pounds 11m on turnover of Pounds 33m. Interim results for this year included a Pounds 4m pre-tax loss on retailing before pre-tax profits of Pounds 17.3m on all activities.

London Electricity GB United Kingdom, EC P4911 Electric Services COMP Company News RES Facilities P4911 The Financial Times London Page 10 212
Building output Publication 930313FT Processed by FT 930313

CONSTRUCTION output in the UK fell by 5.5 per cent last year, the Department of the Environment said yesterday.

GB United Kingdom, EC P1522 Residential Construction, NEC P1542 Nonresidential Construction, NEC P1629 Heavy Construction, NEC P17 Special Trade Contractors MKTS Production P1522 P1542 P1629 P17 The Financial Times London Page 6 58
Soft drinks revive Publication 930313FT Processed by FT 930313

THE SOFT drinks market returned to growth last year after a 6 per cent decline in sales volumes in 1991, a report by Britvic Soft Drinks said yesterday. Consumption rose by nearly 1 per cent to 8bn litres, with an estimated retail value of Pounds 5.5bn.

GB United Kingdom, EC P2086 Bottled and Canned Soft Drinks MKTS Sales P2086 The Financial Times London Page 6 73
Lloyd's losses put at Pounds 2.4bn Publication 930313FT Processed by FT 930313 By ANDREW JACK

CHATSET, the company that analyses Lloyd's results, said yesterday that losses on the insurance market could reach Pounds 2.4bn for 1990 according to its preliminary estimates, Andrew Jack writes. The company plans to release figures by early April.

Lloyd's dismissed the figures as 'pure speculation'. Its results will be released in June.

Chatset Lloyds of London GB United Kingdom, EC P6411 Insurance Agents, Brokers, and Service COMP Company News P6411 The Financial Times London Page 6 91
Fishermen blockade port to repel French trawler Publication 930313FT Processed by FT 930313 By JIMMY BURNS

A FRENCH trawler was last night prevented from entering Milford Haven harbour in west Wales when three trawlers blockaded the entrance and warned that no French boat would be allowed into the port.

The French trawler was forced to remain at anchor outside the harbour last night, unable to land her cargo.

More British boats are expected to join the blockade in time for high tide this morning when another French trawler is expected at Milford Haven with a cargo of fish. Trawlermen are protesting at the effect of imports on local prices and claim that some of the French fish landed at the Welsh port are re-exported to France.

Jimmy Burns writes: Earlier yesterday fishermen's leaders called for a European Community import ban on Russian cod but held back from supporting a blockade of ports.

Officials of the National Federation of Fishermen's Organisations, which represents most fishermen in England and Wales, called for the ban at a meeting in Grimsby, where fishermen this week stopped lorries from delivering Russian fish to the local market.

The UK Association of Frozen Food Producers yesterday warned that any import ban could lead to a shortage of fish by the summer.

Mr Geoffrey Molloy, the association's chairman, said: 'Banning cod imports will not help the consumer and will certainly not help prices. The increases in landings which the fishermen complain about are, in fact, caught by UK fishermen themselves.'

The Ministry of Agriculture, Fisheries and Food said yesterday the government would not back the fishermen's call for a ban at next week's EC council of fisheries ministers.

GB United Kingdom, EC FR France, EC P9229 Public Order and Safety, NEC P091 Commercial Fishing PEOP Personnel News GOVT Legal issues P9229 P091 The Financial Times London Page 6 309
New facts in hunt for Salvation Army cash Publication 930313FT Processed by FT 930313 By JIMMY BURNS

SOLICITORS acting for the Salvation Army were yesterday studying new information as part of their efforts to recover more than Pounds 6m allegedly missing from the charity's funds, Jimmy Burns writes.

The information is contained in the form of an affidavit signed by Mr Mark Duffy which was handed to Slaughter & May, the army's solicitors, prior to a High Court hearing yesterday.

The hearing was related to a court order under which Mr Duffy and 14 defendants named in a writ were required to disclose information relating to the whereabouts of the sum of Dollars 8.8m, formerly standing in an account held at Banque Continentale du Luxembourg.

Mr Mark Duffy was named in the writ because of his association with Mr Stuart Ford, a Birmingham-based businessman who is alleged to have conspired to defraud the Salvation Army. There is no claim of wrongdoing against Mr Duffy.

In his affidavit Mr Duffy blames his failure to submit information earlier to the Salvation Army on the fact that he had temporarily had to leave the country to avoid the attentions of the media.

GB United Kingdom, EC P6732 Educational, Religious, etc Trusts PEOP Personnel News GOVT Legal issues P6732 The Financial Times London Page 5 220
Pounds 3.9bn help urged for low-paid Publication 930313FT Processed by FT 930313

A Pounds 3.9bn package of support for the low-paid financed by modest tax increases on high-income earners will be proposed today by the Low Pay Unit in a submission to the chancellor.

The proposals include raising tax allowances and age-related personal allowances by Pounds 350, changes in national insurance contributions and a Pounds 1-a-week increase in child benefit.

GB United Kingdom, EC P9441 Administration of Social and Manpower Programs GOVT Government News RES Capital expenditures P9441 The Financial Times London Page 5 93
Venezuelan president faces fraud ruling Publication 930313FT Processed by FT 930313 By JOE MANN CARACAS

VENEZUELA'S attorney general has asked the Supreme Court to rule whether President Carlos Andres Perez can be charged with fraudulent use of Dollars 17m (Pounds 11.9m) in government funds.

The attorney general, Mr Ramon Escovar Salom, asserted in documents filed with the High Court that Mr Perez and two former ministers misused funds from a secret state account managed by the president, the minister of the interior and a limited group of high officials.

However, the constitutional grounds for such unprecedented action in pressing criminal charges against a sitting president are not clear in Venezuela.

Mr Perez began his five year presidential term in February 1989.

VE Venezuela, South America P9229 Public Order and Safety, NEC PEOP Personnel News GOVT Legal issues P9229 The Financial Times London Page 4 143
UN condemnation for Unita Publication 930313FT Processed by FT 930313 By REUTER THE UNITED NATIONS

The UN Security Council yesterday threatened unspecified action against Unita rebels in Angola, Reuter reports from the United Nations.

A council resolution, passed unanimously, 'strongly condemns' violations by Unita of peace accords, its failure to take part in political institutions, its withdrawal from the new Angolan armed forces and 'its seizure by force of provincial capital and municipalities'.

AO Angola, Africa P9721 International Affairs P86 Membership Organizations GOVT Government News P9721 P86 The Financial Times London Page 2 92
German leaders struggle towards solidarity pact Publication 930313FT Processed by FT 930313 By QUENTIN PEEL BONN

AS SPRING sunshine broke through the winter gloom of Bonn yesterday, the entire German political establishment was locked away behind the closed doors of the chancellor's office, searching for signs of daylight in the fine detail of their 'solidarity pact' for east Germany.

Chancellor Helmut Kohl, with a string of top government ministers, the leaders of all the main parliamentary parties, the 16 prime ministers of the federal states, and their finance ministers and advisers, agreed to carry on negotiating in working groups all evening, and meet again today, in an attempt to forge the political consensus they have been seeking since last September.

A formula has to be found to finance a spending gap of DM110bn (Pounds 46.6bn) in 1995 to pour more money in-to the collapsed eastern economy.

The signs last night were that there was clear movement towards a political compromise, although the final figures - at least on the burden sharing - may take a little longer to agree. The opposition Social Democrats, led by Mr Bjorn Engholm, prime minister of Schleswig-Holstein, have won the first key battle to block any big cuts in social spending.

Instead, they have agreed on a campaign to clamp down on unemployment and social security swindles, and to identify further savings of more than DM3bn in other parts of the budget.

The other main move was a concession to the new states of east Germany for the government to shoulder a share of their DM51bn housing debt, thus freeing the way for faster privatisation of the dilapidated state-owned housing stock.

What remains are the toughest nuts of all to crack:

When and by how much to raise taxes through a new 'solidarity surcharge': Mr Kohl is adamant it must not come before 1995, and the SPD looking for a tax rise this July.

How to split up the whole burden between the budgets of the federal government and the 16 Lander, and share the pain between the rich states and the poor.

DE Germany, EC P9311 Finance, Taxation, and Monetary Policy GOVT Government News P9311 The Financial Times London Page 2 366
West ponders how to aid Russia: Tight economic policies needed to stop waste Publication 930313FT Processed by FT 930313 By LEYLA BOULTON MOSCOW

AS President Boris Yeltsin's political troubles help focus western minds on the need to accelerate assistance for his economic reforms, the question of how to deliver help becomes more urgent than ever.

One reason why the west has not produced large-scale finance for Russian economic reform is because of doubts that it would achieve its purpose. The banking and distribution systems are extremely primitive, capital flight and corruption are big problems, and the bureaucracy is slow and inept.

Even Mr Boris Fyodorov, the deputy prime minister for economics and finance who arrives in Hong Kong today for talks with the Group of Seven industrialised countries, agrees that stopping aid from being wasted is the biggest headache. Without tight economic policies, all would be lost.

The stakes are high. If the aid does not reach its targets, the risk of a political backlash against reform in Russia is heightened. If aid is not controlled, it might just provide a financial cushion to delay reform.

There is also pressure for aid to go beyond new loans. Much of the Dollars 24bn (Pounds 17bn) package promised by the west last year was limited to loans guaranteed by western governments for imports of western goods and equipment. A new emphasis would target western cash at projects to show concrete benefits and even help Russia generate hard currency.

The World Bank would lead such efforts, which include, for example, a plan to finance equipment to cap gas flares in Russia's oil industry.

This thinking is even being applied to the International Monetary Fund, last year charged with administering western financial assistance to Russia in return for reforms which never materialised.

Diplomats say the G7 is now considering the creation of a special fund, to be run by the IMF, to finance specific programmes. One - approved by the Russian premier, Mr Viktor Chernomyrdin - would organise five model bankruptcies in key sectors. This would send a warning to enterprises squandering state support and instruct officials and judges on how to implement Russia's first bankruptcy law in 70 years.

Another idea is for the IMF to take on the burden of subsidies at present provided by Moscow to the former Soviet republics through the issue of credits from the Russian Central Bank. Mr Fyodorov says that last year Russia spent the equivalent of Dollars 18bn subsidising the former republics.

Technical assistance might also draw more on examples which have worked well so far. One model is the work of the International Finance Corporation, the World Bank's private sector development arm, which is working in the provinces to help local authorities privatise shops, big enterprises, and even land.

Mr Mikhail Gurtovoi, who last year headed a government commission to fight corruption until it was disbanded, suggests that plants equipped with western machinery but not completed under inefficient state management should simply be given to western companies. Completed and run by westerners, they would provide models of efficiency and jobs.

RU Russia, East Europe P9721 International Affairs RES Capital expenditures GOVT Government News P9721 The Financial Times London Page 2 534
Serb shelling kills women blockading UK troops Publication 930313FT Processed by FT 930313 By REUTER SARAJEVO

SHELLING by Serbs killed and wounded a number of women and young children blockading British soldiers in a Moslem village in east Bosnia yesterday, Reuter reports from Sarajevo.

Major Martin Waters, at the headquarters of the British UN battalion in Vitez, central Bosnia, said two doctors were performing operations on the victims without the use of anaesthetic. 'There are quite a few dead, and six children under five were seriously injured, two with their legs blown off.'

Five British soldiers are being held hostage in the besieged village of Konjevic Polje by Moslems demanding a ceasefire, the stationing of UN monitors in the region and humanitarian aid.

The soldiers, in two armoured cars, were escorting a UN medical convoy to Konjevic Polje on Thursday when they were surrounded by Moslems demanding their wounded be evacuated.

After spending the night in the village the five soldiers continued talks with a group of villagers, most of them old people, women and children.

The British soldiers were joined by a third armoured car yesterday. Artillery from surrounding mountains opened up and shells hit the crowd.

'The fire was very well-aimed, they obviously had an observation post in the mountains,' Major Waters said.

BA Bosnia-Hercegovina, East Europe P9711 National Security PEOP Personnel News P9711 The Financial Times London Page 2 231
World News in Brief: Girl charged with murder Publication 930313FT Processed by FT 930313

Police in Southampton last night charged a girl of 15 with the murder of a 23-month-old boy.

GB United Kingdom, EC P9229 Public Order and Safety, NEC PEOP Personnel News GOVT Legal issues P9229 The Financial Times London Page 1 53
World News in Brief: London equities close 37 points lower Publication 930313FT Processed by FT 930313

Nervousness over political developments in Russia and Hong Kong caused the already depressed London stock market to take a turn for the worse in mid-afternoon when the FT-SE 100 index dipped to within five points of the 2,900 mark. However, there was no significant selling pressure and the market staged a comfortable rally in late dealings. The final loss of 37.5 left the Footsie at 2,915.9. In New York, stocks tumbled for a second day and the Dow Jones Industrial Average closed 29.18 points down at 3,427.82.

London stock exchange, Page 15; World stocks, Page 21; Lex, Page 24; Markets, Weekend II

GB United Kingdom, EC P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 1 136
World News in Brief: UN general reported held Publication 930313FT Processed by FT 930313

Five British soldiers pulled out of a Bosnian village where they had been blockaded for 24 hours, but the commander of United Nations forces in Bosnia, General Philippe Morillon, was reported to be held by civilians in the eastern Bosnian town of Srebrenica.

Women killed, Page 2

BA Bosnia-Hercegovina, East Europe P9721 International Affairs PEOP Personnel News P9721 The Financial Times London Page 1 77
Finance and the Family: The Week Ahead Publication 930313FT Processed by FT 930313

UNITED Biscuits' full-year results on Thursday will be scarred heavily by the profits collapse at Keebler, its US subsidiary, and a consequent restructuring charge. With Keebler's margins still under pressure, analysts forecast group pre-tax profits of about Pounds 160m, down from Pounds 211.3m last time.

The McVitie's division is thought to have benefited from a stronger year-end, as well as from contributions from European acquisitions. A small improvement is forecast for the Ross Young's frozen foods business, though KP Foods' results fell back slightly.

Annual profits from English China Clays, due on Monday, will reflect the problems of the paper industry, its major customer. Paper-makers have been trying to share their pain with suppliers, while ECC is also suffering competition from the US. Analysts are looking for a fall in profits from 1991's Pounds 115.4m pre-tax to Pounds 85m-95m. However, under the new FRS 3 accounting standards, the numbers should look better, with a rise to around Pounds 100m from Pounds 79.3m.

The end of the UK-quoted banks' reporting round comes on Monday with results from HSBC Holdings. HSBC, which acquired Midland bank last summer, is expected to announced pre-tax profits of between Pounds 1.6bn and Pounds 1.8bn for 1992.

Guinness, on Thursday, is expected to report a 17 per cent decline in 1992 pre-tax profits to Pounds 795m. An exceptional charge of Pounds 125m for the re-organisation of the group's whisky operations and Spanish brewing business accounts for most of the shortfall on 1991's Pounds 956m.

Arjo Wiggins Appleton, the paper-maker, is likely to report on Thursday a drop in pre-tax profits of around one-third to Pounds 160m. It is suffering from the slowdown in the continental economies and excess capacity.

Laporte, the UK chemicals group, reports its full-year results on Monday. During the takeover of Evode earlier this year, the company predicted that its pre-tax profits would fall from Pounds 97.2m to Pounds 86m.

Analysts expect the full-year dividend to rise from 18.9p a share to between 19.3p and 19.7p. Analysts will be more interested in the group's forecasts for the remainder of the year: more than a third of Laporte's sales are in north America.

Rentokil, the pest control, plant hire and environmental services group, is expected to report on Thursday another big jump in pre-tax profits for 1992. Analysts are expecting about Pounds 115m-Pounds 122m (Pounds 94.6m) and a full-year dividend of 2p-2.5p (1.7p) is forecast.

George Wimpey, the house-builder, is heading for a full-year loss om Tuesday of around Pounds 70m before exceptional charges of Pounds 20m. Some recovery is expected this year.

United Biscuits (Holdings) English China Clays HSBC Holdings Guinness Arjo Wiggins Appleton Laporte Rentokil George Wimpey GB United Kingdom, EC P99 Nonclassifiable Establishments P20 Food and Kindred Products P26 Paper and Allied Products P28 Chemicals and Allied Products P6719 Holding Companies, NEC P1522 Residential Construction, NEC P32 Stone, Clay, and Glass Products P7342 Disinfecting and Pest Control Services FIN Company Finance COMP Company News P99 P20 P26 P28 P6719 P1522 P32 P7342 The Financial Times London Page IV 519
Finance and the Family: Budget squeeze on BES? - Speculation centres on non-recourse and university schemes Publication 930313FT Processed by FT 930313 By JOHN AUTHERS

COMETH the Budget, cometh the BES speculation. Last year's announcement that the business expansion scheme would be axed at the end of 1993 might have put an end to the whispers which are always used to justify a rushed BES investment on the eve of a Budget. But the whispers will continue, and speculation centres on two areas: non-recourse loans and university schemes.

Non-recourse loans allow the investor to exit from the BES company after only six months - not the five years intended originally. The Inland Revenue could make them harder to operate by deeming a non-recourse loan to be an effective disposal of the BES shares. This would sacrifice the tax relief.

Gordon Brown, Labour's shadow chancellor, attacked non-recourse schemes this week, pointing out the huge benefits they provide to top-rate taxpayers for low risk. This intensified speculation that they will be axed, as even BES advisers concede that the schemes are 'pure arbitrage.'

The Revenue itself is the source for the speculation surrounding university schemes, having refused provisionally to allow tax relief for some companies sponsored by Johnson Fry which bought accommodation for University College, London. It has forced companies which have a contracted exit after five years to spend the cash they raise as quickly as possible. Sub-letting to foreign students or summer conferences will now be more difficult, as universities must show that there is some financial benefit to the student. Universities must also take care to show that the accommodation bought by the BES company really is vacant.

What is likely to happen? The Revenue's dislike of university schemes - particularly those where accommodation owned already by the university is sold to the BES company, and no extra housing is built - is plain, but it might already have been manifested in its clampdown.

Meanwhile, non-recourse loans were allowed only after careful consideration. The schemes as they operate are almost offensively generous to top-rate taxpayers while excluding basic rate-payers, and the subsidy for repossessed housing is sent by an absurdly circuitous route.

But abolishing them now would - in the words of David Toplas, of Terrace Hill Capital - 'deny the building societies a source of funding literally weeks after it was first made available to them.'

A more cynical, but probably correct, view comes from Ian Pugh, of the Allenbridge Group: 'Politically, it still looks dreadful, but it is a discreet form of government subsidy to banks and building societies. That's the effect of it.'

For all these reasons, a headlong dive to invest in the BES before the Budget, if the scheme would not otherwise make sense to you, seems ill-advised.

More schemes came on to the market this week and supply is now at an unprecedented level. Competition has pushed up the rates on offer. According to Pugh, Pounds 509m has been raised by non-recourse loan schemes to date, with another Pounds 134m available for investment.

The following list, provided by Allenbridge, shows all the companies now on offer which allow either non-recourse loans after six months, or a contracted exit after five years, or both. Figures given are per Pounds 1 initially invested.

Accumulus III (76p after six months, Pounds 1.06 after five years).

A Priori (74p after six months, 78.31p after one year, 87.71p after two, 98.24p after three. No five-year guarantee).

Barratt Fixed Growth (115p after five years).

BESSA Bristol and West (73p after six months, 105p after five years).

BNP Flexible (75p loan and 115p).

Cavendish Gleeson (75p loan and 105p).

Cavendish Growth (115p).

Govett IV (115p).

Homes for Littlehampton (117p).

House The Homeless (115p).

Image II (115p).

Lancaster University (74p loan and 108p).

Leeds Flexible (same as A Priori).

Oriel Residences (77p loan and 105p).

N&P Multiple (same as A Priori).

Portman Multiple (same as A Priori).

Prowting Flexible (74p loan and 106.4p).

Residences at Bristol (75p loan and 105p).

Uncapped Growth (125p).

4th University Cash-Backed (73.5p loan and 110p).

WISH II (120p).

Yorkshire Flexible (75p after six months, 79.37p after one year, 88.88p after two, and 99.54p after three years).

For up-to-date information, contact BES intermediaries such as the Allenbridge Group (071 409 1111) and BESt Investment (071 936 2037).

GB United Kingdom, EC P65 Real Estate P67 Holding and Other Investment Offices TECH Products CMMT Comment & Analysis P65 P67 The Financial Times London Page IV 746
Finance and the Family: Income shares: expect the unexpected - Philip Coggan on a complex, and sometimes risky, investment Publication 930313FT Processed by FT 930313 By PHILIP COGGAN

INCOME SHARES appear to be all the rage at the moment. In the recent launch of its Split fund, Schroder received so much demand for the shares that it was forced to increase the size of the trust and buy large chunks of the other classes of share itself.

The popularity of income shares is largely due to falling interest rates. With returns from building societies more than halved over the last two and a half years, investors are on the lookout for any product which can offer an above-average rate.

Holding the shares tax-free within a personal equity plan (the Schroder shares yield 8 per cent after charges) puts the icing on the cake. But income shares can be complex instruments and investors need to consider the risks carefully before buying.

Income shares receive all the dividend income of a particular investment trust. Because they constitute only part of the capital of the trust, the yield on each share can be much higher than on a conventional trust share.

There is a catch. In return for taking first claim on the trust's income, holders allow other classes of share (usually zero dividend shares) to have prior claim on a trust's capital.

Thus the danger for a private investor is to concentrate purely on the current yield offered by an income share. Very often the shares will have a set repayment value - which will often be less than the current price, and in some cases, such as Contra-Cyclical, will be virtually zero.

What normally happens is that, in the early years of the trust, investors are attracted by the running yield and push up the price; as the date becomes due for the trust to be wound up, the share price falls rapidly towards its repayment price. Those who buy such shares at the wrong time will lock themselves into a capital loss.

This can also be true with the so-called 'hybrid' shares, which sometimes go under the innocent-sounding name of 'ordinary income' shares. The repayment value of such shares is not set, but dependent on what is left after repaying the other classes of capital.

The value of hybrid shares can thus be highly volatile and dependent on the manager's success in growing the assets of the trust.

There may well be investors who want securities which pay a high rate of income but which run down capital - income shares could be an alternative to an annuity, for example.

Such shares might also be useful for creating capital losses to offset against gains elsewhere in the portfolio for CGT purposes. Remember, however, that you cannot do this with income shares held in a Pep, which is outside the CGT system.

But there may be many people who buy these shares without realising what kind of investment they are getting. A reader wrote to the Weekend FT last year, complaining that his income shares in Fleming Income & Capital had declined from Pounds 6,000 to Pounds 4,000 by the time he received his first Pep statement. 'I may never see my Pounds 6,000 again,' he lamented.

In fact, by the time his letter arrived, his shares had rebounded so he was back in profit. That is the kind of bumpy ride which hybrid income shares can provide - and not all investors will enjoy it.

As we reported in January, Fleming and Kleinwort Benson wrote to investors in their split capital trusts to warn them of the dangers involved in reinvesting the income on high income shares.

Income shares were unpopular for a while in 1992 as investors worried that UK companies were cutting dividends sharply as a result of the recession. The fear was that many income shares would be unable to maintain their dividends. But the period since Black Wednesday has seen a revival.

'As a sector, they have had a pretty good run as people have switched due to falling interest rates elsewhere. It is becoming a fairly fully valued sector. One has to search to find reasonable value,' says John Korwin-Szymanowski, investment trust analyst at S G Warburg Securities

We asked Korwin-Szymanowski to recommend a few income shares that offered the best returns. The table below shows four shares, with their current price, the years before they will be wound up, the flat yield (the current income divided by the share price) and the gross redemption yield, assuming either no growth in the trust's income and assets or 5 per cent per annum growth.

All this illustrates how complicated the calculations for the investor can be. Take the M&G Dual shares, which stand at 350p. The running income on the shares is a whopping 26.3 per cent. But when the trust is wound up in under four years time, the shares will be repaid at just 100p. So those who buy Pounds 3,500 worth of shares now will get back Pounds 1,000.

If you allow for this, the gross redemption yield (assuming dividends stay static) is 12.7 per cent. But because most of this return in the form of income, the net redemption yield after basic rate tax is just 2.9 per cent per annum. Even if one assumes dividend growth of 5 per cent per annum, the net yield is just 6.6 per cent.

So this share, Korwin-Szymanowski points out, is only really suitable for non-taxpayers. Other shares, which have lower flat yields, have more attractive net redemption yields. One of his tips, General Consolidated, has already cut its dividend but Szymanowski thinks the worst is over and the shares are only marginally above the repayment value. So while the running yield is lower than on M&G Dual, the net redemption yield is higher.

Shares in Tor participate in some of the trust's capital growth, so the redemption yield increases sharply on optimistic assumptions about the stock market.

Because so much of the return is in the form of income, top rate taxpayers should only consider income shares inside a Pep (and even then beware of the capital losses). Once they have used up their Pep allowance, they will normally be better off looking for capital gain than seeking extra income. Few investors use up their annual CGT allowance (Pounds 5,800 in 1992-93).

Income shares can have their attractions. But it is not a good idea simply to look in the papers for the stock with the highest yield. The expert advice of a stockbroker is essential.

GB United Kingdom, EC P6282 Investment Advice TECH Products P6282 The Financial Times London Page III 1117
Finance and the Family: Few mourn the death of Taurus - Richard Waters surveys the ruin Publication 930313FT Processed by FT 930313 By RICHARD WATERS

'THE MONSTER is dead. Private investors should just breathe a big sigh of relief.' That was the reaction of David Jones, chief executive of discount broker Sharelink, to this week's decision to pull the plug on the Taurus computer. As the London Stock Exchange's plans for a paperless settlement system were declared dead, it was a sentiment echoed in many quarters.

Taurus was never popular with the brokers who deal with individual investors - or with the investors themselves. The plan to do away with share certificates and stock transfer forms, replacing them with a computerised system for share ownership and transfer, aroused deep antipathy among many investors. It was difficult to see what benefits the changes would bring, and brokers hinted darkly that it would lead to higher costs.

The demise of the system (it proved too complex to build) does not mean that nothing will change. The Bank of England has now picked up the baton and is bent on forcing through quick changes to the settlement arrangements. In fact, things could now move much faster than they would have if Taurus had been kept alive. No decisions have yet been taken, but a number of things are clear.

First, the interest of private investors will be given much higher priority than they were last time around. Bank of England officials said this week that some interest groups could suffer in the search for a swift solution to London's settlement traumas - but it was a high priority to ensure that private investors were not disadvantaged. That is an important political priority after the Taurus fiasco.

Second, whatever developments replace Taurus, private investors are likely to be treated differently from institutions, since their demands differ. Institutions want to move quickly to a simplified version of Taurus, involving a computerised system. Private investors are likely to be left alone while this objective is pursued.

Third, most brokers have moved on since development of the Taurus system began seriously in the mid-1980s. Most have given more management attention to their back offices and automated more of their activities. Stephen Cooke, of stockbroker Gerrard Vivian Gray, says: 'A firm like ours has halved its settlement costs since 1987.' That has made settlement more efficient and brought down the cost.

One aspect of this development has been the effort made by many brokers to put private client's shares into their nominee companies. Some broking services, such as Barclayshare and the Share Centre, operate exclusively on a nominee basis. Also, most personal equity plans are managed through nominees.

Nominee accounts are more efficient to manage than individual shareholdings: brokers control the share certificates, and make transfers on behalf of their clients. The arrangement effectively replicates many of the functions of Taurus.

Of course, many investors do not want to use nominees. Most brokers charge a fee for them. Also, being in a nominee account makes it impossible to claim rights as a shareholder, for instance to receive a company's annual report and attend its annual general meeting.

If nominees are the way of the future after Taurus, then the Bank of England should give careful attention to how they can be made to operate more effectively for private shareholders.

GB United Kingdom, EC P6231 Security and Commodity Exchanges TECH Standards TECH Services P6231 The Financial Times London Page III 580
Markets: The components of recovery - The Bottom Line Publication 930313FT Processed by FT 930313 By JANE FULLER

IF YOU go by headline figures alone, it was a good week for three UK makers of motor components.

GKN, biggest of the three with annual sales of Pounds 2.53bn, increased pre-tax profits by 77 per cent to Pounds 121.8m. T & N gained 56 per cent to Pounds 63m; BBA, 53 per cent to Pounds 47.4m.

They all had a familiar theme: stringent cost-cutting had enabled more profit to be made out of sluggish sales. With the majority of their turnover being overseas, they had some insulation against the prolonged UK recession.

It must be said that profits were recovering from a low base. With the new FRS3 accounting rules bringing past rationalisation costs above the line, GKN's 1991 pre-tax profit was reduced to a third of 1989's Pounds 206m peak.

More ominously, none of them bounced back far enough to cover their dividend payments, which exceeded earnings per share for the second year running. GKN's earnings were not far off its 20.5p pay-out, but T & N managed to cover only 55 per cent of its 10.85p dividend.

All three have made little change to the payments in three years, inspiring relief among investors, who may have feared cuts, and consternation among observers who believe too much has been distributed.

It would be wrong, however, to over-stress the comparability of the three stocks and, as the chart shows, the market has treated them very differently over the past six years.

GKN is the only one to have recovered the ground lost when cyclical stocks were out of favour. Before the UK recession hit, its core businesses were settled, particularly driveline components and pallet hire. 'It had stopped mucking about,' said one analyst, whereas both T & N and BBA had incomplete hands and kept acquiring.

A related strength has been the much-admired GKN balance sheet. Net debt has nearly halved since December 1989. Its latest figure for debt-equity gearing was only 23 per cent, compared with 61 per cent for BBA and 45 per cent for T & N - rising to 60 later this year when a German acquisition is brought in.

At the other end of the scale T & N has effected the biggest transformation from the least promising roots: in asbestos-ridden building materials. This has, however, been funded by a string of rights issues. The sheer weight of shares coupled with weak earnings has hit the price. Its 1987 issue - post the AE acquisition - was priced at 205p; its 1991 issue - post JPI in the US - was only 140p.

BBA comes in between. It has settled down since its 1991 rights issue, which eased the balance sheet after 14 deals in less than three years. Indeed it has made a virtue of being more of an industrial holding company than an auto engineer, playing down its dependence on any one market. With 35 per cent of sales derived from north America, it is the best placed to benefit from the recovery under way there.

Although only BBA's share price made progress this week, all three stocks are trading near their 12-month highs. There is one big question that affects their prospects: how far will the continental European car market fall this year?

Forecasts from the car makers make sobering reading. Louis Hughes, president of GM Europe, recently said new car sales in western Europe were expected to fall from 13.4m to 12.3m this year, with Germany, Italy, France and Spain all in retreat. GKN is thought to have the most exposure to the continent - although T & N is making a German acquisition just as that market dips.

Sir David Lees, GKN's chairman and chief executive, said this week that any financial progress this year would again depend mainly on the group's ability to cut costs and improve productivity. That means more job losses - a pattern echoed elsewhere.

If doubts creep in about the prospects for earnings growth, worries will also recur about dividends.

Those who have trusted the dogged determination to maintain, characterised by Colin Hope at T & N, have been rewarded in terms of yield. The companies, however, have dipped into their reserves and been hit through the tax system - hence Sir David's call for ACT relief in the Budget.

GKN T and N BBA Group GB United Kingdom, EC P3714 Motor Vehicle Parts and Accessories CMMT Comment & Analysis MKTS Market data P3714 The Financial Times London Page II 764
Markets: Don't be rushed by the taxman - Serious Money Publication 930313FT Processed by FT 930313 By PHILIP COGGAN, Personal Finance Editor

IT IS easy to get hurried into making investment mistakes at the end of the tax year. The pressure of the April 5 deadline, the advertisements in the papers and the brochures in the mail, the feeling of guilt at having neglected their finances for the rest of the year: all conspire to persuade investors to unleash their chequebooks.

Two products are receiving most of the attention; the business expansion scheme and the personal equity plan. John Authers gives details of the latest BES offers on page IV. Some are exploiting the quirks of the system to offer high - and reasonably safe - returns over six months; such deals often sell out within days.

But it is far from true to say that all BES offers are good deals. The dangers of rushing into these investments are illustrated by Johnson Fry's difficulties over its University College, London, scheme which was part of two hastily-assembled offers at the end of the last tax year.

With personal equity plans, we cannot stress too often the danger that, in some cases, the charges may outweigh the tax benefits.

The short-term tax gain is, in fact, fairly small; even if a Pep yields 5 per cent after charges, then a basic rate taxpayer who invests Pounds 6,000 is saving just Pounds 75 a year in tax. In some cases, it may be better to buy the equities direct.

It is, of course, a good thing that investors are diversifying away from their dependence on the building societies. Investors should have a balanced portfolio of gilts, shares and cash. Furthermore, the evidence suggests that, over the long term, equities are the best investment.

But the key words in that sentence are long term. If you take out a Pep now, you are taking out a Pep with the UK stock market at an all-time high. You must be prepared for the possibility that your investment might fall in value in the short term.

Often, it is only when shares have been hitting new highs that investors start to feel they might be missing out and pile into the market. Persuading investors to buy at the bottom is far more difficult.

Back in November 1991, when the yield on the market was above 5 per cent, I wrote a column urging investors to put money into the UK stock market.

Figures from M & G then showed that there had been 30 years between 1919 and 1989 when the yield on the All-Share was more than 5 per cent at year end.

In every single case, investors in shares earned a positive real (after inflation) return over the following five years; the average real return was 14 per cent per annum.

On the day the column appeared, the All-Share stood at 1182.51; it is now 1437.25, a rise of 21.5 per cent. And investors will have enjoyed income of 5 per cent or so on top.

Of course, for every journalist's prediction which is correct, there is another that is wildly wrong. But the figures do show the benefits of buying near the bottom of the market.

By contrast, the same M & G analysis shows that there were 12 years when the market ended the year yielding under 4 per cent. Following 10 of those 12 years, investors suffered a negative real return on equities over the following five year period. The All-Share is yielding just over 4 per cent at the moment.

This is not to say that investors should avoid equities, or Peps, altogether. There is a good case for arguing that the budget deficit will eventually force the government to raise taxes; and that will make the tax concessions involved in a Pep more attractive. But it could mean that a savings scheme approach, which smooths out the peaks and troughs of the market, might be far more sensible.

The end of tax year rush tends to make investors forget about savings schemes because they want to get the full Pounds 6,000 allowance into the market. There is, however, a nice compromise: the phased approach (offered by Fidelity, Henderson and Mercury, for example). This involves giving the management group Pounds 6,000 up-front before April 5; it then drip-feeds the sum into the market over the following year.

Alternatively, you could just wait for the stock market to retreat from its euphoria. The old saying is 'Sell in May and go away'; shares often decline in the summer months and you could well find the market looks more attractive in, say, August. If you miss this year's Pep deadline, it is not the end of the world.

Furthermore, those who are buying Peps for income should concentrate on whether the dividend payments will be maintained or increased. Provided they can be, and the present yield is better than building society interest, they can try to ignore the capital element.

Of course, investors should be wary of plans which turn capital into income (see the article on income shares on page III). But if investors are getting a high income, they should be prepared for very little growth in their capital.

Above all else, investors must be patient. Some of those who bought Peps early in 1987 are breaking even only after 5 1/2 years. Others may already have sold out in disgust. Come 1995, you might wonder why you bought that Pep early in 1993; but by the year 2000, the reason should be crystal clear.

GB United Kingdom, EC P6231 Security and Commodity Exchanges CMMT Comment & Analysis MKTS Market data P6231 The Financial Times London Page II 958
Markets: Down behind the U-bend, horror lurks - London Markets Publication 930313FT Processed by FT 930313 By PETER MARTIN, Financial Editor

ON THURSDAY, disaster befell the London Stock Exchange's plans to overhaul its plumbing, and the plumber left abruptly, leaving a nasty-smelling mess behind.

The hoped-for new plumbing was the exchange's Taurus scheme to abolish share certificates and computerise the process of transferring them from seller to buyer. The plumber was Peter Rawlins, the exchange's chief executive, who resigned.

The dirty job of salvaging the situation will go to the Dyno-Rod team at the Bank of England, by now well used to peering into the City's dark corners in search of the unspeakable.

The City reacted to all this much as you might expect the tenants of a ramshackle building to respond to distant rumblings in the pipes. They complained that London was the laughing-stock of Europe, they blamed each other, they said 'I told you so' - and they didn't let it make a blind bit of difference to everyday life.

The market learnt the first tidings of Taurus's imminent demise on Wednesday; that day the FT-SE 100 rose 6.8 points to 2,956.7, less than a point away from the record close set on Monday. On Thursday, when the cancellation became official, the index dropped only 3.3 points. Almost all that loss was attributable to a further slide in the shares of Glaxo, until recently the City's darling.

All glamour stocks get their come-uppance in time, and in principle there is nothing remarkable in Glaxo's fall from favour. In practice, though, there are two striking features. One is the sheer bulk that Glaxo has assumed in the UK's financial landscape. Last autumn, it was the second most valuable company in Europe, ranked by market capitalisation, and the most valuable purely UK company. (The top-ranked group was Royal Dutch/Shell, which is only 40 per cent British.)

Though Glaxo has now slipped back behind British Telecom in market capitalisation terms, it is still worth around Pounds 20bn, making up 3.3 per cent of the FT-SE Actuaries 350, the stocks likely to be of interest to the typical institutional fund manager. When Glaxo sneezes, the market catches cold.

The second striking feature about Glaxo is that, for the bluest of blue chips, it is a rather idiosyncratic company. For the last 13 years, it has been dominated by Sir Paul Girolami, its chairman, who has dragged it from obscurity to its present status as one of the two darlings of the world drug industry. (Merck of the US is the other.) Sir Paul, now 67, has already showed one chief executive the door, and this week he did it again, ushering Ernest Mario firmly out.

Just as the management is dominated by one enormously powerful and talented individual, so the profits are dominated by one enormously successful product, the ulcer-drug Zantac. Both will soon be reaching the point at which their contribution to the company starts to taper off; investors are understandably nervous about the prospect.

Mario's departure pushed the shares down by 6 per cent in the immediate aftermath of the announcement. They recovered much of that during that day, and moved sideways on Friday, closing the week at 665, up 5p. Any uncertainties about Glaxo's management were offset by the thought that the company would now scarcely be likely to make a rights issue to finance a big acquisition, one of the market's recent fears. Still, management succession is an issue; the transition from a powerful chairman is never easy.

Look at BTR, another company associated in the public mind with a strong-minded and creative chairman. That man, Sir Owen Green, stepped down this week. The new chairman, Norman Ireland, is eminently qualified for the post, having just ended a successful spell as chairman of Bowater.

So far, so smooth. Seen from another point of view, however, the transition is an incomplete one. Ireland is 65 years old, and is best known for the years he spent at Owen Green's side, as one of the triumvirate who ran BTR in its years of fastest growth. His appointment raises the suspicion Sir Owen was not yet ready to hand over full power to a younger generation.

The stock market paid less attention to such thoughts, however, than to BTR's results, announced on the same day: an 18 per cent rise in profits to Pounds 1.09bn, and evidence that the acquisition of Hawker Siddeley in late 1991 had not affected the group's traditionally healthy trading margin. The shares ended the week at 610 1/2 p, up 26 1/2 p.

Other results were less reassuring. SG Warburg's running assessment of how company results compare with its analysts' expectations shows a surprisingly poor figure - a drop in pre-tax profits by 20 per cent compared with the previous year, twice as bad as had been expected. For manufacturing companies, where expectations had been rosier, the disparity was greater.

Investors appeared to be taking little notice of these figures, partly because - Barclays apart - there have been no real individual horror stories, and partly because much of the impact is ascribed to the switch to the new FRS3 accounting principles.

Also at work was a traditional pre-Budget rally: BZW's Richard Kersley calculates that over the past five years, the FT-SE 100 has risen some 3 per cent in the month before the Budget, then dropped back exactly that amount in the month that follows.

Still, on Friday the rumbling in the pipes grew louder: the drop in the Hong Kong stock market dragged down the FT-SE 100 though its impact on HSBC Holdings, the London holding company for Hongkong & Shanghai Banking Corporation. HSBC shares fell 5.7 per cent, ending the week at 604p, down 12p. The index dropped 37.5 points, closing at 2915.9, a fall of 6.2 on the week. Has anyone seen the plunger?

GB United Kingdom, EC P6231 Security and Commodity Exchanges MKTS Market data CMMT Comment & Analysis P6231 The Financial Times London Page II 1004
Finance and the Family: Smaller companies on the rise - At a Glance Publication 930313FT Processed by FT 930313

In a week when the FT-SE 100 Index reached more all-time highs, small company shares joined in the fun. The Hoare Govett Smaller Companies Index (capital gains version) rose 1.2 per cent from 1366.23 to 1382.97 over the week to March 11; the County Smaller Companies Index rose 1 per cent from 1080.21 to 1090.85 over the six days to March 10.

GB United Kingdom, EC P6289 Security and Commodity Services, NEC MKTS Market data P6289 The Financial Times London Page II 100
Finance and the Family: How to cope with debt - At a Glance Publication 930313FT Processed by FT 930313

A new book on coping with debt has been produced by the Child Poverty Action Group. It has chapters on obtaining debt advice, negotiating with creditors, dealing with bailiffs, bankruptcy and court procedures. Debt Advice Handbook, Mike Wolfe and Jill Ivison, CPAG Ltd, 1-5 Bath Street, London EC1V 9PY, Pounds 7.95

GB United Kingdom, EC P2731 Book Publishing TECH Products P2731 The Financial Times London Page II 85
Finance and the Family: Britannia mortgage offer - At a Glance Publication 930313FT Processed by FT 930313

Britannia is offering first-time buyers an eye-catching 3.99 per cent mortgage (8.1 APR). However the new rate, available from Monday, is fixed for only six months before reverting to the standard variable rate, currently 7.99 per cent.

Alternatively, potential buyers can opt for 5.99 per cent (8.3 APR) fixed for the first year. To qualify for these rates potential buyers have to put down a 10 per cent deposit. Higher rates are available for those who can only put down 5 per cent. The rates apply to all types of mortgage but two insurance related products must be taken out from the society.

Britannia Building Society GB United Kingdom, EC P603 Savings Institutions TECH Products P603 The Financial Times London Page II 139
Finance and the Family: Council tax, know your rights - At a Glance Publication 930313FT Processed by FT 930313

The Department of the Environment expects more than 1m people to appeal against the level of their council tax bill when it comes into force on April 1. If you are one of these, you may welcome a booklet published by Council Tax Services, which is a guide to the appeal procedure. It gives advice on how to prepare an appeal and details of the relevant law.

Seven Points Publications has prepared a questionnaire for those who suspect they are in the wrong valuation band or want to know if they are eligible for relief. It will use the results to assess whether you have grounds for a case and what action you could take.

Cutting your Council Tax - A Guide to Appeals, Council Tax Legal Services, PO Box 2764, London E9 7EJ, Pounds 5.50 + 75p p&p.

Council Tax Made Easy, Seven Points Publications, PO Box 119, Chichester PO18 9LY, Pounds 12.50.

GB United Kingdom, EC P9121 Legislative Bodies P2741 Miscellaneous Publishing GOVT Taxes TECH Products P9121 P2741 The Financial Times London Page II 194
Finance and the Family: F&C stays on path - At a Glance Publication 930313FT Processed by FT 930313

Foreign & Colonial, the UK's largest investment trust, increased its net assets by 22.1 per cent in 1992, a performance better than both the FT-A All-Share Index and the average investment trust. The final dividend was increased by 5.2 per cent to 2.23p, the 22nd consecutive annual increase. The trust, which is celebrating its 125th anniversary, now has over 58,000 shareholders; private investors now own 39 per cent.

Foreign and Colonial Investment Trust GB United Kingdom, EC P672 Investment Offices FIN Annual report P672 The Financial Times London Page II 108
Finance and the Family: Gilt-edged Wednesday for investors - At a Glance Publication 930313FT Processed by FT 930313

Black Wednesday looks as though it should be re-christened White Wednesday as far as the long-dated gilts market is concerned. Initial reaction to the UK's departure from the European exchange rate mechanism stoked fears of higher inflation in future, and long-dated gilt prices fell. But once base interest rates began to fall, the market took off. As the graph shows, anyone with the courage to buy gilts at their lowest point should be sitting on a rise, once income is included, of 17 per cent in less than six months.

GB United Kingdom, EC P6211 Security Brokers and Dealers MKTS Market data P6211 The Financial Times London Page II 126
Markets: Inflation threat undermines the euphoria - Wall Street Publication 930313FT Processed by FT 930313 By PATRICK HARVERSON

THE THREAT of inflation again alarmed Wall Street this week, sending stock and bond investors scurrying for cover just two days after they had lifted prices on both markets to record highs. The news that prompted yesterday's heavy selling (in the first 30 minutes of trading, the Dow Jones Industrial Average tumbled more than 50 points and bond prices dropped sharply, sending the yield on the benchmark 30-year bond back up past 6.8 per cent) was the 0.4 per cent increase in the February producer price index, a closely-watched inflation indicator.

Although analysts were expecting a smaller increase in the PPI, the number itself was not especially shocking, coming in no more than one-tenth of a percentage point higher than the median of forecasts. So why was there such a dramatic reaction from financial markets?

Essentially, the PPI number was, as they say on Wall Street, 'a wake-up call.' Over the past year, both stock and bond investors, particularly the latter, have grown complacent about the threat of inflation, which has been running at an annual rate this past year of about 3.3 per cent.

More important to investors, the inflation outlook has consistently been bright. Economic growth might have picked up in the past few quarters but it has been remarkably uninflationary, and economists - who are forecasting growth this year of between 3.0 and 3.5 per cent - expect it to remain that way.

The reason is that they expect improvements in growth to remain primarily a function of rising productivity which, over the past year, has helped to keep unit labour cost inflation extremely low. If, in spite of accelerating economic growth, the labour market remains depressed for the foreseeable future, then the markets need not worry too much about wage inflation.

Yet, what about that extraordinary February employment report of just over a week ago, when a wholly unexpected surge in non-farm payrolls spread temporary panic in the bond markets? Was that not proof that the jobs market was, finally, catching up with the recovery?

Not necessarily, if the most recent weekly jobs data are to be believed. Thursday's report, showing a big rise in the number of people claiming state unemployment insurance during the final week of last month, contradicted directly the February employment figures.

However, not everyone was convinced by the news. There are those on Wall Street who follow the weekly jobless claims numbers - which, they believe, are both more accurate and more up-to-date - while others prefer to concentrate on the monthly employment report, a supposedly less exact measure but one that is less prone to volatility and a better measure of longer-term trends.

Making sense of the conflicting economic evidence is not easy. The most sensible response to the recent numbers would be to conclude that economic growth will maintain a steady, if unspectacular, pace this year; that jobs growth will remain sluggish; and that inflation, while still weak by historical standards, will soon assume an upward trend.

Making sense of the stock and bond markets is another matter. Both look distinctly overbought, which is probably why investors panicked slightly yesterday when the inflation data proved worse than expected.

Equities still look expensive - the Standard & Poor's 500 is trading at 23 times earnings - and bonds have been supported as much by short-term technical factors (investors switching out of mortgage-backed securities because of prepayment fears, and continued speculation that the Treasury will slash the size of future long bond issues) as they have been by the economic fundamentals. This means prices are vulnerable to sudden reverses.

On the positive side, money continues to flood in from investors seeking better returns than from low-yielding certificates of deposit and money market funds. This should provide a bedrock of support for share prices, and please the mutual fund managers and stockbrokers.

Among the latter, Charles Schwab revealed this week that it executed a record number of trades for customers during February, an illustration of how much individual investors still like stocks.

This must have cheered Sanford Weill, who yesterday concluded a Dollars 1bn deal that will merge the Smith Barney broking subsidiary of his Primerica group with the Shearson brokerage unit of American Express.

The new creation will rival Merrill Lynch as a powerhouse in retail broking - an extremely profitable business to be in these days.

------------------------------------ Monday 3469.42 + 64.84 Tuesday 3472.12 + 2.7 Wednesday 3478.34 + 6.22 Thursday 3457.0 - 21.34 Friday 3427.82 - 29.18 ------------------------------------

US United States of America P6231 Security and Commodity Exchanges MKTS Market data CMMT Comment & Analysis P6231 The Financial Times London Page II 789
The Long View: Closing escape hatches Publication 930313FT Processed by FT 930313 By BARRY RILEY

THIS IS a time for the vision thing. Alas, we are unlikely to get much of this scarce commodity in Norman Lamont's Budget statement next Tuesday, but it is important to turn aside from the narrow focus on occasional greenish shoots of recovery and instead take, to coin a phrase, the long view.

Serious errors of domestic economic policy have plagued us but the most important influence is exogenous. As the vast potential of China is being unleashed upon the global traded goods market, with 1 bn people willing to work for Dollars 1 an hour, several hundred million more are entering the global economy in Eastern Europe.

It is not just a question of cheap Russian fish, which seems to be the latest point of friction: the point is that the market value of low-skilled labour in Britain is tumbling generally. There appears to be acceptance of this, albeit reluctant; in my district this week, bus drivers confronted with a pay cut of some 10 per cent did not even obey a one-day strike call.

For Lamont the serious budgetary consequences include a reducing tax take and rising benefit costs. These structural problems cannot be cured in the short term by any conceivable economic growth rate. So the government's responsibility is not to engineer some kind of economic miracle, but rather to establish a stable financial framework and to attempt to reconcile people to the real world. And while the labour market crisis is painful it does present important opportunities.

The immediate budgetary challenge is that the government will have to finance large deficits for several years ahead. There is a feeling that they might not be quite so large as pessimists have been fearing, and the public sector borrowing requirement to be posted for 1993-94 may be nearer Pounds 40bn than Pounds 50bn. The chancellor may have a tactical opportunity to please the markets. But in any event it will be a huge figure.

Luckily we are starting from the base of a relatively low debt burden of about 40 per cent of GDP and, although massive deficits could raise that to perhaps 60 per cent in about four years, the burden would be no more than in the early 1980s. But the cost of borrowing will prove increasingly important. Fortuitously, the global bull market in bonds has helped to drag the cost of issuing long-dated British government securities down from over 9 per cent to about 8 1/4 per cent. But the official central expectation of inflation, on the basis of the 1-to-4 per cent target range, is only 2 1/2 per cent.

Is the government seriously prepared to fund at a real rate of nearly 6 per cent? The big deficits of the 1970s were financed at a zero real rate. There is profound disbelief among professional investors: the inflation rate implied by the real interest rate on index-linked gilts is still 4.8 per cent. Norman Lamont cannot deliver an economic miracle next Tuesday, but he could attempt the humbler task of undermining these inflation assumptions.

How? Well, the reason for the City's cynicism, besides bitter past experience, is that the government is still clinging to inflationary escape hatches: the modest debt-financed recovery in consumer spending in January has been officially welcomed, and there are still dreams of a new wave of mortgage lending at cheap rates that might raise house prices and bail out busted borrowers and shaky lenders alike. The underlying reality, however, is a collapse in earnings growth that is cutting real incomes and is making a house price recovery impossible.

This should above all be a Budget for cutting interest rates, long as well as short. The obvious comparison is with Geoffrey Howe's notorious tax-raising 1981 Budget to which 365 Keynesian economists laid unavailing siege (some are still camped outside the gates). But there are big differences. Howe had to contend with a much higher inflation rate of 12 1/2 per cent, but at the same time there was a balance of payments surplus so the country was able to borrow and consume its way out of recession. This time around we must invest and produce towards recovery.

These are technicalities, but short-term rates must go down in order to steepen the yield curve, especially between one and five years, and thus to increase the relative appeal of longer-term government paper. This in any case will need to happen if the so-called full funding rule is relaxed with the objective of financing part of the Budget deficit through the banking system. But sterling in these circumstances would be vulnerable, and in the past, most recently in 1988, uncontrolled credit surges triggered by low interest rates have proved highly inflationary.

This is the right moment, therefore, to tackle the short-termism of the housing market. Tax relief on mortgage interest should be withdrawn except in respect of loans on which the interest rate is fixed for at least five years. Efforts should also be initiated to redirect small business finance through new longer-term institutions rather than the banks, which no longer want most of this business anyway.

Such measures would alleviate fears of inflation because they would tend to reduce the growth of the broad money supply. Moreover the politically-sensitive interest rate paid by home owners would become linked to the long-term one rather than the short-term money market rate. Readers would demand that the sterling long bond yield should be listed on the FT's front page.

To keep mortgage rates low the government would need to follow prudent, non-inflationary policies. Signs of irresponsibility would send up rates and tend to produce weakness in the housing market, whereas at present imprudence is often associated with lower short-term rates and therefore with political popularity.

Just supposing you were a Downing Street visionary, even higher taxes could have their good side.

GB United Kingdom, EC P99 Nonclassifiable Establishments CMMT Comment & Analysis P99 The Financial Times London Page I 1007
Carnival: a dance to the music of crime - It's famous and it's fun, as Christina Lamb discovers when she dances the samba through the streets at dawn. But the reality is that Rio's showpiece festival hides a dark underside, crime Publication 930313FT Processed by FT 930313 By CHRISTINA LAMB

THE illuminated clock tower of Rio Central railway station told me it was 4.15 am. I was balancing three plastic peacocks, each a metre high, on my head and a pair of sequin-encrusted plasterboard wings on my shoulders. My torso was contorted by a body stocking several sizes too small and my legs tottered on silver boots. I reflected that I had never really wanted to parade, clad like this, before 60,000 people. Especially at this hour.

With my centre of gravity somewhere behind my neck, an armpiece fell off if I moved my legs. If I waggled my arms, the head-dress started to slide. As if to accentuate my discomfort, a group of wayward birds started a jarring rendition of the dawn chorus. The dull thud of a hangover was pounding my temples and my smile was a grimace.

I was about to compete in Rio's yearly carnival parade as one of the 4,500 dancers defending the reputation of the Mangueira samba school - and still I had not mastered the samba despite the valiant efforts of Carlinhos de Jesus, my fleet-footed teacher.

The shout went up. It was our turn. Fireworks exploded and drums thundered until the whole road shook and the air quivered with excitement and anticipation. Our feet pawed the ground like racehorses. Pushing us into lines, a man with a stick yelled 'Move it] Open your mouth] Sing]'. Then we were off, running suddenly into the glare of a thousand lights. All around in the stands, a blur of faces were waving pink and green flags - the school's colours - and cheering 'Mangueira]'

The digital clock marking our progress moved slowly. We had 65 minutes to pass along the 540m avenue. For the first 10, I thought I would never make it. My throat rasped like sandpaper as, over and over, I croaked out the words of our song: 'I'll devour this mango, even the core.' Sweat poured down my face, glitter in my eyes. Suddenly, though, propelled by the energy surging from the crowd, my feet began skipping in an extraordinary way. I became part of an enormous magical opera, a wealth of feathers and glitter, of floats bearing giant golden elephants, painted zebras and fearsome warrior heads.

Carlinhos had said that samba moves people because its rhythm is like the beat of the heart - and he was right. It was addictive, I never wanted to stop.

The parade, which stretches from dusk to dawn on two nights, is the glittering centrepiece of carnival, the biggest, most lavish party on earth. A week-long jamboree, it involves hundreds of thousands of people and brings the whole of Brazil to a stop. But, unknown to the mesmerised tourists, the glamour and glitz hides the fact that it is funded largely by organised crime.

The sponsors of the party are the bicheiros, the men who run the jogo do bicho, or animals' game - an illegal gambling racket - and whose tentacles spread through the underworld of Rio. Maria Laura Cavalcante, an expert on carnival from Rio's Institute of Folklore, says: 'Beneath the parade's beautiful face of light and art lurks a dark underside of crime, killing and urban violence.'

It was not always so. Carnival has religious origins: the date marks the start of Lent and the name derives from the Italian carne vale (goodbye to meat). It began last century with European costume balls and parades for royalty, based on the Italian Commedia dell'Arte. At the same time, the African slaves on the sugar plantations in Brazil's north-east had their own, far humbler carnival when one man would dress up as king for the day. The two fused late in the 19th century after abolition of the trade and a searing drought in the north-east sent many former slaves to Rio. The pounding samba beat was the result of a suggestion by a Portuguese named Ze Pereira that all the members of his carnival club should play their drums at the same time.

Founded in the 1920s, the first samba schools were so-called because they used school grounds for their rehearsals. Today, there are 60 schools in Rio, mostly in the poorest areas after which they are named, and they have become the heart of their local communities. The 14 top clubs, or Premier League, compete annually in the main parade. This used to be in Avenida Rio Branco, the city's main commercial thoroughfare, but in 1984 it was transferred to the Sambadrome, a specially-constructed stadium designed by Oscar Niemeyer and consisting of a long cement corridor lined with rows of boxes and stands.

What really turned carnival from a somewhat ramshackle affair, with the poor scraping together their own costumes and floats, into the grandiose spectacle of today was the bicheiros. The jogo do bicho is as old as the republic, having been launched by a certain Baron Joao Batista Drummond to raise funds for his private zoo after the Portuguese empire ended in 1889. The lottery - in which different animals represent different numbers - was such a success that it was copied and multiplied, going underground when gambling was declared illegal in 1946.

Despite being illegal, there are gambling points visible on almost every street corner and around 300 bicheiros in Rio run a network of 1,200 lotteries employing some 40,000 people. It costs just Cr1,000 (3.5p) to bet and the game is so popular, particularly among Rio's 3m favela (slum) dwellers, that it moves millions of dollars each week. No one cracks down because the police receive kickbacks, the politicians often have their campaigns funded by the bicheiros, and the people can dream of winning fortunes.

Bicheiros have long contributed to samba schools to gain support in the poor communities where most of their clients (and much of the electorate) live, but their patronage has become more explicit since the 1970s. The turning point was 1975 when a bicheiro known as Anisio hired a top carnival designer, Joazinho Trinta, to produce a spectacular parade with huge papier-mache animals, spinning roulette wheels and fabulous costumes for his school, Beija Flor. Since then, the bicheiros have thrown money at the schools in attempts to outdo each other. In 1984, they created the Premier League, in which only the Mangueira school is not run by them but by an elected president.

Samba schools each spend an average of more than Dollars 1m on the parade and some as much as Dollars 4m, up to 50 per cent of which is bicheiro money. Such large sums mean that the parade has, increasingly, become professionalised. Schools hire directors and keep dancers and singers on fat retainers, swapping and selling them like football stars. Watched live on television by 50m, the splendour of the costumes and floats has superseded the importance of energy and dance skills in judging each parade.

My school, First Station of Mangueira, is one of the oldest. It was founded in 1924 at Rio's first suburban railway station. In its fierce struggle to retain some independence, it has obtained some sponsorship from companies such as Shell. But the bicheiros are infiltrating; they have taken one directorship already and the jaws of the big-timers who do not yet control a school are snapping at the door. The last-but-one president was assassinated and rumour has it that drug money is rife.

This year, a series of misfortunes suggested that Mangueira could keep out the bicheiros no longer. Already-scarce funds were frozen last month when a judge ruled in favour of a woman who claimed that Mangueira had stolen her song. Rehearsals were cancelled and fierce squabbles broke out. Dona Neuma, the school's 70-year-old First Lady and daughter of one of the founders, attacked the 'new administration' and said she would not parade for the first time in 64 years. Roberto Firminho, the president, retorted furiously that 'the old lady should retire and stay at home with her mouth shut.' The case was, however, resolved a week before carnival and Dona Neuma relented.

Four weeks before the big night I visited the barracao, the school's centre of preparations in an enormous concrete hangar with a corrugated iron roof and a pink gate, guarded to prevent rivals taking a sneak preview. Reeking of carpenters' glue, hammers were banging and drills whirring everywhere. Disembodied papier-mache figures and limbs lay discarded on the floor: here a cow's head, there a count's leg. It seemed they could never be ready on time and the work force was buzzing with talk about other schools' sumptuous special effects. Firminho sauntered out to greet me. Rubbing his moustache, he claimed not to be worried. 'It's always like this,' he smiled, unconvincingly.

He was right, though. The week before carnival, the barracao had been transformed into a magical kingdom of medieval castles, French drawing rooms complete with marble columns, green brocade, gilded mirrors and chandeliers, Portuguese galleons on a silver sea, 10 ft-high elephants, and zebras dancing around an enormous African warrior head.

A man with a clipboard of pencil sketches was barking orders at 100 people working round the clock on 10 floats, scurrying up and down ladders with hammers and paint brushes, creating marvels from foam, fibreglass, wire and paints of myriad colours. Ilvamar Magalhaes is the carnavalesco, the man who creates the Mangueira 'look.' Having chosen this year's mango theme almost a year ago, he buried himself in libraries to discover how the fruit came to Brazil and to design the floats and costumes (known as fantasias) to tell the story.

Carnival is an enormous industry, bigger even than shipbuilding. Preparations for the big week provide permanent employment for 80,000 people including musicians, architects, carpenters, electricians and sculptors. Samba schools are the main breeding ground for musicians and dancers, who spend the rest of the year giving demonstrations. Some of the painters in the barracao are well-known artists.

Parade day dawned cloudy and rain-laden but could not dampen the general glee. Inflation of 30 per cent a month and searing recession were forgotten as society people and slum-dwellers mingled, worry lines falling from faces before my eyes. Walking towards the lights of the Sambadrome through a warren of tiny streets littered with beer cans and bits of fantasias, Cosmi Tudo, a drummer from Mangueira - resplendent in white silk tunic and gold turban and unrecognisable as a construction worker - said: 'We're poor and no one notices us but, for one day of the year, we're kings.'

As we watched the other schools parade, our spirits soared. Surely, we said, the Mangueira song is catchier, its floats prettier. We laughed cattily as the Salgueira school's flag-bearer slipped, someone lost a hat, and a dancer from Estacio fainted. On and on went the processions of warriors, Indians, voluptuous women in rhinestoned bikini bottoms (their breasts splendidly naked and surely silicone-enhanced), cavemen under showers, giant insects, mermaids, and older women whirling in wide, hooped skirts held up with hosepipes.

We marvelled at the giant steamships of Salgueira and the gadgetry of Mocidade with its flying model helicopter, lasers and video screens. It seemed an incredible waste in such a poor country for so much luxury to be created for just one night and then thrown away, but Trinta explained: 'Intellectuals want poverty but the masses don't. They want luxury.'

Finally, it was our turn as the last school of the second night, the pink glow of dawn visible already over the lights of the favelas. The roar of the audience sent us into ecstasy - except for five breath-stopping minutes when the mast of our Portuguese caravela got stuck under the television tower. Afterwards, Magalhaes was jubilant: 'It's definitely our best since 1987 (the last time the school won).'

Convinced we had come second, the results announced the following afternoon were a huge disappointment: Mangueira was placed a poor fifth and Salgueira had clinched its first victory in 17 years, scoring top marks in all categories from choreography to floats, story, costumes and music. A devastated Firminho said the school would appear at the champions' parade for the top five schools wearing black headbands. He complained: 'Some judges always try to appease the most powerful.' Dona Neuma was more philosophical: 'Mangueira has been parading 68 years. We're used to such results. I cry.'

Over at Salgueira, it seemed the celebrations would never stop. King of it all, in a white suit and banana grin, was Waldemir Garcia, known as Miro - a bicheiro who describes himself as a farmer. Only a week earlier, he had been in court - bracketed by heavily-armed security guards in dark glasses - facing charges for drug trafficking and running gangs.

BR Brazil, South America P7999 Amusement and Recreation, NEC CMMT Comment & Analysis P7999 The Financial Times London Page I 2184
Search starts for Taurus successor Publication 930313FT Processed by FT 930313 By RICHARD WATERS

THE BANK of England task force considering a new stock market settlement system for London yesterday focused on a two-tier system which would treat individual investors and big institutions differently.

At a two-hour meeting, the 10-member task force agreed to look urgently at using an existing stock exchange system, Talisman, as the basis for a new institutional settlement system. Whatever the outcome there will be wide-ranging consultation before any decision is taken.

The task force, drawn together hastily this week, was meeting the morning after the stock exchange scrapped its ill-fated Taurus project and accepted the resignation of Mr Peter Rawlins, chief executive.

Talisman was introduced in 1979 as an automated settlement system for marketmakers, who hold shares in what are known as 'Sepon' nominee accounts. One person present at the task force meeting said afterwards: 'The Sepon system is perfectly capable of doing the job. There's no reason why it shouldn't be used for institutional investors.'

Similar ideas were expressed widely in the City yesterday by brokers and custodians. However, there were some doubts whether Talisman could be adapted to handle the extra volume of trades.

A quick move to Talisman - regarded as possible before the end of this year - would enable institutional investors to settle transactions soon after they have been carried out, perhaps after only three days. For private investors, the time taken to settle their trades would be longer.

Talisman could also be made available to nominee companies which pool the shareholdings of individual investors, the task force member said.

This would effectively allow some individuals to settle trades in the same way as institut-ions.

Mr David Jones, chief executive of Sharelink, the stockbroking firm which regularly handles up to 10 per cent of the bargains on the stock market, said: 'The banks and the registrars have got to be told that they cannot run this industry for their own interests.'

City settles on way ahead, Page 5 Letter, Page 9 Bourse chief to quit, Page 12 Few mourn death of Taurus, Weekend Page III

GB United Kingdom, EC P6231 Security and Commodity Exchanges P601 Central Reserve Depositories TECH Services P6231 P601 The Financial Times London Page 1 377
Bombay blasts leave 200 dead: Federal troops flown in after wave of bombings on commercial targets Publication 930313FT Processed by FT 930313 By ALEXANDER NICOLL, Asia Editor

THE INDIAN government flew federal paramilitary troops into Bombay last night after more than a dozen bombs exploded in the city, killing about 200 people and injuring more than a thousand.

The devices, mostly car bombs, appeared to be a systematic attack on India's commercial heart. All exploded within 90 minutes in the afternoon. Among the targets were the Bombay Stock Exchange, the landmark Air India building, a shopping complex, and two hotels near the airport.

The identity of the bombers was unknown, but the attacks were a severe setback to India's attempts to heal the wounds created by recent intercommunal violence, which has caused deep shock throughout India.

More than 2,000 people died in riots, including over 700 in Bombay, after the razing of a mosque at Ayodhya in northern India by Hindu zealots on December 6.

The bombs appeared designed to stir a renewal of communal strife and to undermine efforts by the government of Mr PV Narasimha Rao to open up the economy and attract foreign investment and tourism.

One of the targets was close to the headquarters of Shiv Sena, a Hindu nationalist party accused of fomenting violence during the riots, in which most victims were Moslems.

National and local state leaders appealed for calm in an attempt to prevent a renewed outbreak of violence. Mr Rao urged the nation to ignore rumours after the 'inhuman and criminal bomb blasts'.

Mr Sharad Pawar, the former federal defence minister just re-appointed chief minister of Maharashtra state, said all roads into Bombay had been blocked and the army put on alert. He said: 'It is aimed at disrupting the economy and it appears a conscious effort because only Bombay seems to be the target.'

Mr Shankarrao Chavan, the federal home (interior) minister, told parliament in New Delhi: 'We suspect an international conspiracy.'

The Indian High Commission in London said the attacks were 'part of the externally supported terrorism which has targeted India for some time'.

However, Indian officials stopped short of directly accusing Pakistan, the country's arch-enemy.

The bomb attacks were spread throughout the city and were clearly aimed at the city's better-off business people - in contrast to the riots in which victims were mainly poor.

At the 28-storey stock exchange building, about 3,000 people were on the second-storey trading floor when a bomb exploded in the underground car park, hurling shards of glass across the floor and into the street. Some victims were crushed in the stampede to escape. Outside, burned bodies lay among litter from shattered buildings.

IN India, Asia P9229 Public Order and Safety, NEC PEOP Personnel News GOVT Legal issues P9229 The Financial Times London Page 24 470
Birt pay scheme row revives as BBC governors voice concern Publication 930313FT Processed by FT 930313 By ANDREW JACK, DAVID OWEN and RAYMOND SNODDY

PRESSURE increased yesterday on Mr John Birt, BBC director-general, and Mr Marmaduke Hussey, his chairman, over Mr Birt's tax affairs and his years as a freelance consultant at the corporation.

As more BBC governors broke with tradition and spoke anonymously of their concerns about damage to the BBC's reputation, it emerged that the Department of Trade and Industry is investigating other company accounts prepared by Mr Michael Henshaw, the accountant employed by Mr Birt.

Nearly two weeks after the revelation that Mr Birt as deputy director-general had been hiring himself to the BBC through his private company, John Birt Productions, and thereby saving tax, with the agreement of Mr Hussey and vice-chairman Lord Barnett, the row shows no sign of fading.

On Monday Mr Birt expressed regret and applied to join the staff. The row was revived the next day by his refusal to name the secretarial assistant paid Pounds 15,000 by his company and the subsequent revelation that she was his wife Jane, who also received a Pounds 14,000 fee as a director.

Lord Bonham-Carter, a former vice-chairman of the BBC governors, said last night: 'I think John Birt's position is becoming increasingly difficult as one revelation follows another.' He said the governors had 'every reason to be extremely angry if they were not informed about the nature of this arrangement'.

One senior governor said he was 'concerned very deeply' that he had not been told about a 'non-standard arrangement' such as Mr Birt's contract.

The governors meet on Wednesday at a dinner in honour of Sir Michael Checkland, the retiring director-general. Mr Birt will attend the dinner. His future and that of Mr Hussey could be decided at Thursday's formal meeting of the governors.

Yesterday the Labour MP Mr David Winnick called on Mr Birt to resign. 'There is a growing feeling in political circles and I am sure within the BBC that the best course of action would be resignation,' he said.

Some 64 MPs, including several members of the Labour front bench, this week signed a parliamentary early day motion criticising BBC management.

The DTI probe will cover a number of companies created by well-known individuals from the media who have been advised by Mr Henshaw.

It follows revelations that the 1991 accounts of John Birt Productions failed to comply with a range of auditing and accounting requirements, such as not signing the auditor's report. This will embarrass Companies House, the official depository of corporate information, which should reject accounts which do not have a signed audit statement.

British Broadcasting Corp GB United Kingdom, EC P4833 Television Broadcasting Stations COMP Company News PEOP Personnel News Birt, J Director General British Broadcasting Corp (UK) P4833 The Financial Times London Page 24 479
Patten presses on without China deal Publication 930313FT Processed by FT 930313 By SIMON HOLBERTON HONG KONG

BRITAIN and China have failed to agree a basis for talks about Hong Kong's political future, Mr Chris Patten, the colony's governor, told the local legislature yesterday.

He ordered immediate publication of his democracy legislation.

Mr Patten told a packed Legislative Council (LegCo) that the UK and Hong Kong governments had done all they reasonably could to achieve agreement with China. But Beijing had refused to accept Hong Kong government officials as part of the British team and would not commit itself to a date for the start of talks.

China's reaction was swift. A senior Chinese government official said the governor's action meant Sino-British talks could not proceed. Mr Zheng Guoxiong, vice-director of Xinhua News Agency in Hong Kong, said Mr Patten had 'deliberately ruined the foundation of talks'.

The Hong Kong stock market reacted badly. The Hang Seng Index, which only earlier this week had risen to record levels, fell sharply in the last hour of trading. The index ended 201.44, or 3.16 per cent, lower at 6,170,40.

Mr Patten said he remained prepared ready to talk to China about arrangements for the colony's 1994-95 elections. He would not present the bill to LegCo on Wednesday, as would be normal, but would judge 'in the light of subsequent developments' when best to do so.

The governor made it clear that China's conditions for talks were totally unacceptable. 'I cannot myself see how (diminishing the standing of Hong Kong government officials) demonstrates sincerity or how it demonstrates a commitment to make a success of talks, a success that I would like to see.'

He told BBC radio he was not prepared to 'humiliate' Hong Kong by agreeing to China's demand that talks should be between Beijing and London without Hong Kong representatives. 'What I'm not prepared to do is to confuse being accommodating and conciliatory on the one hand with having absolutely no principles on the other.'

A British Foreign Office official said last night it was hard to escape the conclusion that China had engaged in an elaborate exercise of deception. From virtual agreement to talks on Thursday morning it tried to change the basis for talks on Thursday afternoon and yesterday morning.

Reaction within LegCo to Mr Patten's decision divided largely along party lines. Liberal politicians supported his stand while conservative legislators reacted with disappointment.

Mr Allen Lee, leader of the main conservative bloc in LegCo, said he could not envisage a situation where Britain and China confronted each other for the next four years.

Governor throws down the gauntlet, Page 9

Hong Kong shares drop, Page 21

CN China, Asia GB United Kingdom, EC HK Hong Kong, Asia P9721 International Affairs GOVT Government News P9721 The Financial Times London Page 24 471
The Lex Column: Drinks sector Publication 930313FT Processed by FT 930313

The near 10 per cent relative decline of the UK drinks sector this year reflects not only its fading defensive attraction. Alcohol is an obvious target for a chancellor wrestling with a PSBR of more than Pounds 40bn. Not surprisingly, the industry is busy inventing reasons why increased duties could be counter-productive. The tax take might suffer when domestic consumption of beer and spirits is dropping and personal imports from the continent are growing.

Where beer is concerned, these arguments look self-serving. Duty indexation would add less than 1p to the price of a pint. That is much less than the large price increases imposed a couple of years ago by brewers and which contributed heavily to the fall in demand. Slight over-indexation of duty would not now make matters significantly worse. Though personal imports account for nearly 10 per cent of the take-home trade, the share was 6 per cent before allowances were increased in January. The trend will be clearer by the November Budget.

The spirits case is stronger. The alcohol in spirits is taxed more heavily than in beer and wine, and markedly more than in cider. High UK duty undermines producers' ability to argue against duty increases in European export markets. But EC harmonisation is a long-term issue. There have been some sharp wholesale price increases in spirits this year. The stock market is probably right to assume that the chancellor will be letting those responsible off lightly if he opts for mere indexation.

GB United Kingdom, EC P208 Beverages P9311 Finance, Taxation, and Monetary Policy CMMT Comment & Analysis P208 P9311 The Financial Times London Page 24 282
The Lex Column: UK engineering Publication 930313FT Processed by FT 930313

This week's clutch of engineering company results once more showed the corrosive effect of advance corporation tax on foolhardy companies which earn profits overseas. Given that the chancellor is strapped for cash, there is unlikely to be much help on Tuesday, despite the government's hollow rhetoric about overseas trade. Still, at least most of the companies seem to have learned one lesson from the last recession. They cut costs early and used real business levels, rather than Mr Lamont's claims on the economy, as a strategic guide.

Other defensive measures have been less well rewarded. International diversification has meant that companies which had to endure the long Anglo-Saxon recession will now have to follow on with a long continental European decline. While distorted, January and February's 23 per cent fall in continental car sales is a chilling indication of how bad things might get. And despite the strengthening US recovery, the UK car component manufacturers' greater exposure to Europe will mean another very tough year ahead. The flawed logic of balancing aerospace interests with motoring business has been exposed by the severe downturn in both areas. Rumblings from Boeing suggest that it will have to cut production once more.

The clearest victim of these problems is Lucas, which has yet to report. It is slap-bang in the target zone, has been persistently over-optimistic about trading and held back from cutting costs. Small wonder that it is proving tough to find a new chief executive.

GB United Kingdom, EC P34 Fabricated Metal Products P35 Industrial Machinery and Equipment P36 Electronic and Other Electric Equipment P9311 Finance, Taxation, and Monetary Policy CMMT Comment & Analysis P34 P35 P36 P9311 The Financial Times London Page 24 293
The Lex Column: Pilkington Publication 930313FT Processed by FT 930313

Pilkington looked rather silly three years ago when rival Saint Gobain swept up the Solaglass distribution business and strengthened its grip on the UK market. The acquisition of Heywood Williams' glass merchanting arm helps spare its blushes.

The deal gives Pilkington 24 per cent of the distribution market, delivering a firm customer base and the critical ability to increase the utilisation rates of its float lines. The move makes so much strategic sense that one wonders why Pilkington did not act before. After all, such vertical integration is common in most other European markets.

The main worry is the cost. Pilkington is doubtless right that it could not afford to pass up the opportunity. Nevertheless, Pounds 95m looks a lot for a business that made profits of just Pounds 2.7m last year. Although the purchase will enhance earnings and will ease Pilkington's ACT burden, it will also nudge year-end borrowings close to Pounds 1bn.

Yet events are beginning to swing Pilkington's way. The pound's devaluation has enabled it to recapture market share. Its 8 per cent price rise in the UK has a reasonable chance of sticking. The likely sale of its US Sola business in the early summer seems set to realise more than Pounds 200m. Even so, Pilkington will face a dilemma whether to maintain another uncovered dividend. The company must hope that its recovery prospects by then will be strong enough to render such worries obsolete. It is a tight call.

Pilkington Heywood Williams GB United Kingdom, EC P3229 Pressed and Blown Glass, NEC P3442 Metal Doors, Sash and Trim COMP Acquisition CMMT Comment & Analysis MKTS Market shares P3229 P3442 The Financial Times London Page 24 290
The Lex Column: Red noses, red screens Publication 930313FT Processed by FT 930313

Yesterday's 37-point fall in the FT-SE 100 index injects a note of realism into UK equities. Unfolding events in Russia and Hong Kong, combined with a tumbling US equity market, provided the excuse. But the results season so far has been something of a mixed bag. Given the potential for upset in next week's Budget, and the continued flow of rights issues, good reasons for caution can be found closer to home.

There are some striking contrasts in the latest crop of company results. Figures from companies as diverse as BAT Industries, BTR, and GKN proved well up with the market's best expectations. Companies which cut costs and maintained investment through recession now have the operational gearing to deliver earnings growth.

There are notable exceptions. The Pounds 184m pre-tax loss and dividend cut announced by Rolls-Royce on Thursday was a reminder that sections of UK manufacturing are still fragile. Equally, Vickers and WPP are not last in the queue of companies hoping to repair damaged balance sheets with a rights issue.

Selective buying, then, may be the best strategy. The strength of the FT-SE 100 index relative to small and medium-sized companies suggests that the blanket buying of cyclical stocks seen this winter has come to an end. That is not before time. There is still an outside chance the chancellor will be tempted into an early tightening of fiscal policy on Tuesday. If that was seen to prejudice the chances of recovery, companies travelling hopefully for the last six months will look vulnerable indeed.

GB United Kingdom, EC P6211 Security Brokers and Dealers MKTS Market data CMMT Comment & Analysis P6211 The Financial Times London Page 24 290
World Stock Markets (America): Dow drops after heavy selling in bonds Publication 930313FT Processed by FT 930313 By PATRICK HARVERSON NEW YORK

Wall Street

US share prices fell sharply yesterday after an unexpectedly strong February producer prices index sparked heavy selling in the bond market amid fears of a revival in inflation, writes Patrick Harverson in New York.

At the close, the Dow Jones Industrial Average was down 29.18 at 3,427.82, above its lows for the day. The more broadly based Standard & Poor's 500 finished 3.92 lower at 449.80, while the Amex composite ended down 1.22 at 421.09, and the Nasdaq composite 1.50 lower at 692.78. Volume on the NYSE was 247m shares, and declines outnumbered rises by 1,376 to 545.

The news that prompted the selling yesterday was the 0.4 per cent rise in the February PPI and although the increase was only slightly higher than forecast, equity investors reacted badly to the figures - partly because of the sell-off in the bond market that they triggered. In late trading the benchmark 30-year bond was down almost 1 1/2 points at 103 7/32 , pushing the yield up to 6.867 per cent.

Investors were also selling because of a lack of confidence in the market's recent rally, which only on Wednesday lifted the Dow to a record high. Stocks look expensive in relation to corporate earnings, and recent statistics have cast some doubt on the outlook for the economy.

Analysts also said that concern about the political situation in Russia may have contributed to declines.

Primerica rose Dollars 1 1/2 to Dollars 49 1/2 and American Express added Dollars 5/8 at Dollars 28 after the two groups concluded a Dollars 1bn deal in which the latter's Shearson broking subsidiary will be merged into Primerica's Smith Barney brokerage unit.

Under the terms of the deal, American Express will get Dollars 850m in cash, Dollars 125m in convertible preferred stock and Dollars 25m in warrants from Primerica. American Express said it would take a first quarter charge of about Dollars 630m, which would include taxes, transaction-related costs and a reduction in goodwill of Dollars 750m.

General Motors eased Dollars 1/8 to Dollars 38 3/8 in volume of 2m shares as investors shrugged off the unexpected departure of Mr J Ignacio Lopez de Arriortura, the head of worldwide purchasing at the carmaker and a key figure in the company's cost-cutting campaign.

Cyclical stocks were hit by selling, primarily because they had enjoyed big gains earlier in the week when optimism about the economy was sweeping stocks to new highs. Caterpillar lost Dollars 7/8 at Dollars 57 3/4 , International Paper slipped Dollars 5/8 to Dollars 64, General Electric tumbled Dollars 1 to Dollars 86 1/2 , Goodyear dropped Dollars 1 1/8 to Dollars 74 1/2 , and Alcoa fell Dollars 1 3/8 to Dollars 69 1/2 .

Canada

IN TORONTO a late rally brought stock prices back from their lowest levels of the day to close with only a small loss. According to early figures, the TSE-300 index fell 4.36, or 0.12 per cent, to 3,548.06, for a gain on the week of about 24 points. Declines led advances 358 to 272, and the volume of 48.594m shares was well below yesterday's 65.787m shares, and trading value fell to CDollars 468.1m from CDollars 573m.

US United States of America CA Canada P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 21 574
World Stock Markets (Asia Pacific): Hong Kong falls sharply on Patten speech Publication 930313FT Processed by FT 930313 Tokyo

LAST minute buying by foreign investors and arbitrageurs boosted the Nikkei index above the 18,000 level for the first time since September 25.

The Nikkei closed up 132.73 at 18,037.52, its sixth consecutive rise and 7.3 per cent higher on the week; it moved between 17,823.52 and 18,043.95, fluctuating in the morning session on price fixing for March contracts of stock index futures and options.

Volume rose to 800m shares against 444m. Some 500m shares changed hands during the first hour on futures and options-related trading. Domestic institutions, which close their books for the March year-end, liquidated arbitrage positions, while foreign investors and public funds were the big buyers.

Gains led losses by 695 to 316, with 153 unchanged. The Topix index of all first section stocks rose 6.60 to 1,350.94 and, in London, the ISE/Nikkei 50 index edged up 0.44 to 1,085.40.

Traders said that continued selling by investment trusts and corporate investors was countered by foreign buying. The Tokyo stock exchange announced that foreigners were net buyers of Y10.3bn worth of stocks during the first week of March, turning buyers for the first time in four weeks. Investment trusts sold a net Y32.1bn worth of shares, while individual investors sold Y32.8bn. Banks became net sellers for the first time in 26 weeks, selling Y2.9bn.

Nippon Telegraph and Telephone continued to lead the rise, advancing Y15,000 to Y810,000. Corporate holders of NTT shares were also strong, with NEC, which holds 8,000 shares and was the most active issue of the day, rising Y18 to Y779. Hitachi, which owns 6,000 shares, rose Y12 to Y757.

On the other hand, air transport was the worst performing sector of the day, falling 2.94 per cent. A sharp fall in Japan Airlines, which closed down Y28 to Y563 on rumours of heavy foreign exchange losses, weighed on the sector.

In Osaka, the OSE average rose 85.58 to 18,919.80 in volume of 31.5m shares. Roundup

BOMBAY's stock market was badly damaged after a bomb exploded near the trading floor, one of more than a dozen that were detonated in the city yesterday. Hong Kong lost more than 3 per cent after Mr Chris Patten, the governor, said that he was to press ahead with democratic reform proposals.

HONG KONG fell sharply after Mr Patten's announcement, which came just before the close of trading. The decision surprised investors, many of whom had been expecting a resumption in Sino-British talks. The Hang Seng index, which had earlier seen a high of 6,447, closed 201.44 lower at 6,170.40, a fall of 5.1 per cent on the week. Turnover fell slightly to HKDollars 5.04bn from HKDollars 5.10bn.

The selling continued in London as over-the-counter share prices declined strongly, indicating a further fall in the Hang Seng of some 200 points. Analysts forecast that the Hang Seng could fall to 5,850 before the low prices begin to attract foreign investors.

Declines were widespread with HSBC Holdings down HKDollars 2.50 at HKDollars 66 and Hang Seng Bank, which reports 1992 earnings on Monday, HKDollars 2 lower at HKDollars 66. Jardine Matheson fell HKDollars 2.50 to HKDollars 50.

AUSTRALIA tried to extend its gains but a bout of pre-election nerves left the All Ordinaries index up just 0.4 at 1,661.5, off its morning high of 1670.9 but 3 per cent better on the week.

Coal & Allied rose ADollars 2.05 to ADollars 11.10 on news of CRA's ADollars 11.50 a share takeover offer. Analysts said that CRA should win control.

BANGKOK's SET index rose 19.50, or 2.2 per cent to 916.26, up 1.9 per cent on the week, in turnover of Bt6.85bn. There were rumours that Thailand's SEC could be considering reducing the level of punishment for those involved in share manipulation.

JP Japan, Asia HK Hong Kong, Asia AU Australia TH Thailand, Asia P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 21 666
World Stock Markets (Europe): Crisis in Moscow haunts the Continent Publication 930313FT Processed by FT 930313 By Our Markets Staff

BOURSES subsided yesterday afternoon, following an unfounded claim in Moscow that armed troops had entered the Kremlin, and a distinct lack of enthusiasm for equities on Wall Street, writes Our Markets Staff.

FRANKFURT shelved interest rate prospects for worries about Russia, and uncertainty about the outcome of talks between Bonn and the regional German states on the financial aspects of a solidarity pact. The DAX index ended 10.26 lower at 1,707.14, still 1.4 per cent higher on the week.

Turnover fell from DM7.6bn to DM6.8bn. Among blue chips, VW rose DM3.60 to an official DM292.80 close on news that GM's purchasing chief, Mr J. Ignacio Lopez de Arriortura, is joining VW. Mr Lopez, a tough cost-cutter, would likely to help VW improve profit margins, dealers said. VW lost DM5.70 after hours.

Daimler dipped on the news of lower 1992 profits, closing at DM623 and ending the afternoon a net DM10.70 down on the day at DM66.50.

PARIS struggled throughout the day, the decline accelerating as Wall Street opened. The CAC-40 index closed 23.70 down at 1,965.18 after a high of 1,980 and a low of 1,957, as turnover remained static at FFr2.6bn.

In the absence of fresh corporate news, activity was concentrated on the big blue-chip stocks: among financials Suez, leading the actives, dipped FFr5.20 to FFr314.70, Societe Generale FFr6 to FFr638 and Paribas FFr11.10 to FFr416.

Credit Lyonnais CI's slipped FFr15 to FFr520 after the chairman estimated that the bank's 1992 results were the worst for 20 years.

In the car sector Peugeot lost FFr2 to FFr567, having been a little stronger on Thursday following Renault's better than expected results. Valeo eased FFr10 to FFr785.

AMSTERDAM retreated with a fall in the CBS Tendency index of 1.6 to 104.2, down 2.3 per cent on the week. Prices were generally depressed with even ABN Amro losing Fl 1.20 to Fl 53.80 after reporting a satisfactory 9.6 per cent rise in net profit.

VNU declined Fl 3.20 to Fl 104.20 after confirming that it was holding talks with another Dutch company over a possible partnership in its printing operations.

Commenting on this move, NatWest Securities in London said that while some investors may have been disappointed that VNU had not found an outright buyer for the division, long-term prospects remained positive.

MILAN remained weak ahead of Monday's end of the March account with a 6.46 fall in the Comit index to 514.24, down nearly 4 per cent on the week.

The construction sector built on Thursday's losses after a parliamentary committee blocked a government decree which would have allowed public works projects, halted because of the current political corruption scandals, to have proceeded. Cogefar Impresit fell L40 to L2,690 and Grasseto lost L550 to L6,400.

Sip, the telecommunications group, eased just L2 to L1,654 as investors showed little reaction to its L850bn rights issue.

BRUSSELS engaged in profit-taking after a moderately active session with the steel stocks, Arbed and Clabecq, the main centre of attention. The Bel-20 index closed 7.23 lower at 1,238.75, up 1.5 per cent on the week.

The Luxembourg-based Arbed closed BFr250, or 8.3 per cent lower at BFr2,750 and Clabecq dropped BFr48, or 12.6 per cent to BFr332.

STOCKHOLM was weaker as the country's own political crisis remained unresolved. The Affarsvarlden general index lost 13.5 to 1,012.5, a fall of 1.8 per cent on the week as turnover fell to SKr635m from SKr845m.

Volvo lost SKr14 in the B shares to SKr380 after its disappointing results on Thursday.

ZURICH tumbled on the Russian news, the SMI index closing 37.2, or 1.7 per cent lower on the day at 2,164.4, a fraction lower on the week. After gains in cyclicals earlier in the week, Brown Boveri was the most active stock of the day, the bearers falling SFr50 to SFr4,020, but Nestle bearers fared worse with a decline of SFr40 to SFr1,130.

HELSINKI reacted to Thursday's downgrading of its foreign currency debt rating by S & P with a fall in the HEX index of 14.9 to 1,006.2. Turnover was some FM306m.

The bank index lost 2.7 per cent while forestry shares were 2.2 per cent lower.

VIENNA fell in line with neighbouring markets and the ATX index closed down 2.50 at 936.23, the lowest level for two weeks. Austrian Airlines put on Sch10 to Sch1,600 on reports of planned closer co-operation with SAS, KLM and Swissair.

ISTANBUL rebounded by 1.8 per cent after a two-day fall of 4.7 per cent, the market index closing 102.44 higher at 5,757.02. Traders said that next Wednesday's TL26,500bn of bond maturities were expected to flood Turkish financial markets with cash after two weeks of shortage.

----------------------------------------------------------------------- FT-SE Actuaries Share Indices ----------------------------------------------------------------------- March 12 THE EUROPEAN SERIES Hourly changes Open 10.30 11.00 12.00 ----------------------------------------------------------------------- FT-SE Eurotrack 100 1160.62 1159.51 1158.83 1156.80 FT-SE Eurotrack 200 1224.39 1223.06 1222.52 1221.13 ----------------------------------------------------------------------- Hourly changes 13.00 14.00 15.00 Close ----------------------------------------------------------------------- FT-SE Eurotrack 100 1157.06 1151.41 1145.91 1145.86 FT-SE Eurotrack 200 1221.20 1216.37 1212.09 1212.44 ----------------------------------------------------------------------- Mar 11 Mar 10 Mar 9 Mar 8 Mar 5 ----------------------------------------------------------------------- FT-SE Eurotrack 100 1163.60 1167.52 1164.26 1165.04 1159.70 FT-SE Eurotrack 200 1232.53 1231.98 1230.72 1229.32 1225.29 ----------------------------------------------------------------------- Base value 1000 (26/10/90) High/day: 100 - 1160.62 ; 200 - 1224.82 Low/day: 100 - 1144.91 200 - 1210.29 . -----------------------------------------------------------------------

DE Germany, EC FR France, EC NL Netherlands, EC IT Italy, EC BE Belgium, EC SE Sweden, West Europe CH Switzerland, West Europe FI Finland, West Europe AT Austria, West Europe TR Turkey, Middle East P6231 Security and Commodity Exchanges MKTS Market data STATS Statistics P6231 The Financial Times London Page 21 949
World Stock Markets: South Africa Publication 930313FT Processed by FT 930313

JOHANNESBURG was mixed with a gain in the overall index of 12 to 3,451 and in the gold index of 10 to 1,038. The industrial index lost 2 to 4,471 with De Beers 50 cents lower at R66.50 and Anglos 50 cents higher at R97.75.

ZA South Africa, Africa P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 21 74
World Stock Markets: Madrid awaits a key interest rate decision - But the authorities are cautious Publication 930313FT Processed by FT 930313 By TOM BURNS

Next week could be the one that the Spanish bolsa has been waiting for. Not for a long time has there been such a strong feeling that domestic interest rates will come down.

Hopes went on hold this week, especially yesterday when the general index fell 3.04 to 237.41 on profit-taking, declines in other bourses and after 0.2 per cent negative GDP growth in the fourth quarter of 1992.

However, underlying sentiment has been lifted by the prospect of lower domestic inflation figures, due at the beginning of next week, and by the expected easing of key rates in Germany.

What the market is looking for is a cut of perhaps a half-point in the current 13 per cent benchmark intervention rate when the Bank of Spain holds the repurchase tender of its certificates on March 22.

The forecasts of a rally coincide with what appears to be a key change in foreign perceptions about the domestic market. Foreign institutions which, demonstrably, had underweighted Spain last year, seem to have cottoned on to the fact that the bolsa is relatively inexpensive.

With the general index hovering at around 240, the bolsa has put on just over 12 per cent in value since its nadir at the beginning of this year.

By the end of 1992 the Madrid market was undervalued by perhaps as much as 40 per cent and by the end of this year, in the present bullish mood, professionals have estimated that the bolsa could climb to 280.

'People are not selling Spain now,' says Mr Juan Bastos of the Madrid brokers Ibersecurities. 'Investors are not asking whether they should come into but when they should come in. That's a very important switch in perception.'

What seems to have occured is a general decision that the bolsa has hit rock bottom, and that it is time to change positions. If the sentiment in 1992 was to sell in order to come back in at a later date, the mood now is that the later date has more or less arrived; any delays could make the return more expensive.

The upcoming partial privatisations of Repsol, the state-controlled energy group, and of Argentaria, the state-controlled banking corporation, have created an opportunity for investors to correct the underweighting that marked the past months. Both placings are very likely to have a knock-on effect on the rest of the bolsa, simply in the enthusiasm that they generate.

Ahead of either flotation, however, all eyes are expected to focus on how the financial authorities will move. The Bank of Spain is extremely cautious and conservative about easing the interest rates, but, observers ask, can it resist for much longer the growing clamour to ease?

The inflation figures are more important than usual, in part exceptionally so because they will cover two months, January and February - the January figures were not released last month because the statistics office was overhauling the CPI price base - and in part because they are expected to show a strong improvement in the inflationary trend.

The expectation is that year-on-year inflation will be shown to have eased to around 5.0 per cent or 5.1 per cent in January from the 5.4 per cent rate in December, and that the National Statistics Institute will show a further drop to as low as 4.7 per cent in year-on-year headline inflation in February.

Figures like that should be good for the bolsa. A subsequent cut in German rates would give the Bank of Spain considerable room to manoeuvre. 'Money in Spain is far too tight, the rates have to come down but Germany has the last word,' says Mr Alvaro Villacieros of the Madrid office of James Capel.

The Bank of Spain, of course, has a last word, too. It will have until the week after next, and its repo auction, to gauge exactly what signal the Bundesbank is giving and what the best response might be. It will certainly be looking for a differential of at least 400 basis points against the German rates.

For all the bullishness in the air, wise market analysts are extremely wary of overplaying it. The Bank of Spain has every reason to be as tight as it possibly can: wage settlements, which are coming in at between 6.5 per cent and 8.5 per cent, are not showing the desired restraint and the government deficit in 1992, according to the latest figures filtering through, could be closer to 5.4 per cent of GDP instead of the 4.4 per cent claimed by the economy ministry.

The Bank, moreover, is fully aware that fresh assaults on the peseta within the ERM are all too likely. There is a 'risk assumption' among foreign investors that the ERM could fall apart or, more exactly, that the peseta will abandon its battle to remain at the heart of the hard core of the monetary system.

Everything that the government and the Bank of Spain has said to date, however, emphasises that the British option, with its plunging currency and interest rates, is not an option for Spain. The Spanish bulls will be at best cantering, never galloping.

ES Spain, EC P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 21 900
London Stock Exchange: New Highs and Lows for 1992/93 Publication 930313FT Processed by FT 930313

NEW HIGHS (118).

BRITISH FUNDS (2) Ex. 9 3/4 pc '98, Treas. 6 3/4 pc '95-98, AMERICANS (10) BankAmerica, Bankers NY, Chase Manhattan, Citicorp, Colgate-Palmolive, Dun & Bradstreet, Gillette, Merrill Lynch, Rep NY, Tenneco, CANADIANS (2) Imperial Oil, Nova Corp. Of Alberta, BANKS (3) Asahi, Bk. Ireland, Fuji, BREWERS (1) Boddingtons, BUSINESS SERVS (3) ADT, Penna, Serco, CHEMS (1) BTR Nylex, CONGLOMERATES (1) CSR, CONTG & CONSTRCN (1) Boot (H), ELECTRICALS (3) Johnson, Motorola, TDK, ELECTRICITY (3) London, Seeboard, Yorks., ELECTRONICS (11) Bowthorpe, Diploma, Electrocomps., Farnell, Gresham, Hewlett-Packard, ISA, Kode, Learmonth & B, Linx Prtng., Sage, ENG GEN (4) Clayhithe, Concentric, Fairey, Powerscreen, FOOD MANUF (3) Hazlewood, Sentry Farming, Unilever, HEALTH & HSEHOLD (1) Bespak, HOTELS & LEIS (4) Airtours, Compass, Owners Abroad, Do 9 3/4 pc Pf., INSCE COMPOSITE (3) Amer. Gen., Aon, Domestic & Gen., INSCE LIFE (3) Lincoln Natl., Refuge, Transatlantic, INV TRUSTS (16) American Tst., Do B, Euro. Smllr. Wts., Flmg. Enterprise, Nth. Amer. Gas Wts., Foreign & Col. PEP, Lloyds Smllr. Co's Cap., Martin Currie Pac. Wts., New Frontiers 6 1/2 pc '10, Overseas Inv. Wts., Robeco N/V, Do Sub Shares, Rolinco N/V, Do Sub. Shares, Second Alliance, Selective Assets, MEDIA (4) Abbott Mead, Johnston Press, WPP Wts., Watmoughs, MERCHANT BANKS (1) Schroders N/V, MTL & MTL FORMING (1) Clayhithe 9 1/2 pc Cv. '00-01, MISC (3) Christies Intl., Glenchewton, Silentnight, MOTORS (2) Henlys, Pendragon, OIL & GAS (5) NZ Oil, Occidental, Santos, Seafield Res., Total, DOTHER FINCL (2) Cater Allen, Invesco MIM 9pc '95-00, OTHER INDLS (1) Suter, PACKG, PAPER & PRINTG (4) Capital Inds., Low & Bonar, Macfarlane, Portals, PROP (9) Cap. & Regional, Debenham Tewson, Frogmore Ests., Gt. Portland 9 1/2 pc '02, Lon. Merchant, Molyneux, Property Sec., Town Centre, Union Square, STORES (2) GUS, QS, TEXTS (4) Baird, Claremont Grmts., Leeds, Martin Intl., TRANSPORT (3) Manchester Ship, Powell Duffryn, Sea Containers, WATER (2) Welsh, Wessex.

NEW LOWS (5).

BUSINESS SERVS (1) Reed Executive, ENG GEN (1) Torday & Carlisle, HOTELS & LEIS (1) Eurocamp, MEDIA (1) Chiltern Radio, STORES (1) Dunhill.

GB United Kingdom, EC P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 15 373
London Stock Exchange: Trafalgar busy Publication 930313FT Processed by FT 930313 By CHRISTOPHER PRICE, JOEL KIBAZO and STEVE THOMPSON

Turnover in Trafalgar House rose to a total of 9.9m as the shares followed the market lower, the ordinaries easing a penny to 78 1/2 p, and the 'A' shares also down a penny at 75p. Swiss Bank Corporation was said to have been a heavy buyer of both classes of Trafalgar stock late in the session.

The Seaq delayed ticker revealed a block of 4.4m ordinaries had changed hands at 76p and a block of 1.8m 'A' shares had traded at 75p just before the close of business. The broker has been acting for HongKong Land to raise its stake in Trafalgar to around 29 per cent.

Trafalgar House GB United Kingdom, EC P6512 Nonresidential Buildings Operators P1542 Nonresidential Construction, NEC CMMT Comment & Analysis P6512 P1542 The Financial Times London Page 15 153
London Stock Exchange: FDA hits drug blue chip Publication 930313FT Processed by FT 930313 By CHRISTOPHER PRICE, JOEL KIBAZO and STEVE THOMPSON

FUND managers specialising in the health and household sector, already reeling this week from two doses of bad news affecting Glaxo, the drug market's former glamour stock, were given another thorough shaking as SmithKline Beecham (SB) shares fell sharply on bad news from the US.

The US Food and Drug Administration's (FDA) advisory committee rejected approval of SB's Kytril, formulated as an anti-nausea drug, citing concerns about side-effects.

Pharmaceuticals specialists described the rejection of approval for Kytrin as a 'big disappointment', and said that the move was a 'significant knock to confidence in the stock'. He said Kytrin is one of a handful of 'key new drugs' for SB. He also pointed out that the FDA move was seen by the market as a delay rather than total rejection. Another bear point for SB shares was an article in the British Medical Journal which highlighted a review of anti-depressant drugs, favouring existing preparations over newer drugs, including SB's Paxil.

SB shares, heavily supported over the week as big international funds switched out of Glaxo and into SB, tumbled to 466p before steadying and closing a net 21 1/2 off at 469 1/2 p. Turnover in the ordinaries totalled a hefty 6.2m shares.

The overall market decline and yet more selling pressure from the US put paid to any hopes of a revival in Glaxo shares, which dipped to 656p before stabilising and settling a net 3 off at 665p.

SmithKline Beecham GB United Kingdom, EC P2834 Pharmaceutical Preparations P283 Drugs CMMT Comment & Analysis P2834 P283 The Financial Times London Page 15 284
London Stock Exchange: FT-SE 2,900 resists the profit-takers Publication 930313FT Processed by FT 930313 By TERRY BYLAND, UK Stock Market Editor

WHAT should have been no more than the widely-predicted pre-Budget shakeout in the UK equity market was intensified yesterday by nervousness over political developments in Russia and in Hong Kong. A market already generally depressed took a turn for the worse in mid-afternoon when the Dow Average opened 50 points down, and the FT-SE Index dipped to within five points of the 2,900 mark.

However, there was little sign of significant selling pressure and London staged a comfortable rally in late dealings as the equity market moved into the new trading account. The final loss of 37.5 left the FT-SE Index at 2,915.9, but dealers showed little concern at the day's setback.

'Not a bad performance, for the last day of the account ahead of the Budget,' commented a senior dealer at a US securities house. Monday morning will bring a heavy batch of ex dividend adjustments to share prices, and dealers are already under orders to keep trading positions in restraint until Mr Norman Lamont, the UK chancellor of the exchequer, has ended his Budget speech on Tuesday afternoon.

Nevertheless, yesterday saw a heavy setback as profits were taken. Banks, insurances, electricals suffered significant selling pressure and Hong Kong-orientated shares fell on the adverse political developments there.

This week has featured a heavy list of trading statements from leading UK companies as well as unexpected developments among blue chip pharmaceuticals and a decline in global oil prices. Yesterday's setback eliminated gains achieved over the week, leaving the FT-SE Index 6.2 down on the week. But over the two-week equity account, the Footsie has gained about 1.7 per cent as increasing confidence in a recovery in the UK economy has taken the stock market to successive new peaks.

Seaq volume slipped to 769.3m shares yesterday from the 821.9m recorded in the previous session. Around 66 per cent of yesterday's Seaq business was in non-Footsie stocks, slightly higher than recent daily averages as profits were taken across the market range. Retail business has remained high this week, returning values of Pounds 1.65bn on Thursday and Pounds 1.61bn on Wednesday.

UK government bonds opened higher and made further progress in the second half of the session in spite of a dull tone in US bonds. But London dealers said that gilts had been influenced chiefly by internal market pressures and that prices had risen yesterday in response to the disappearance of a recent big seller.

GB United Kingdom, EC P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 15 442
London Stock Exchange: Equity futures and options trading Publication 930313FT Processed by FT 930313 By JOEL KIBAZO

THE FALLS on the Hong Kong market, along with worries over events in Russia, appeared to provide an opportunity for continued profit-taking in the derivatives sector, writes Joel Kibazo.

On the last day of the equity account, trading in the March futures contract on the FT-SE 100 opened at 2,940, some 10 points below its close on Thursday. But for a small mid-morning rally which saw the contract touch the day's high of 2,945, continuous selling drove the contract lower for the rest of the day.

The poor opening on Wall Street only served to increase the falls in March but traders said 2,900 had proved a successful resistance level.

March finished at 2,917, down 33 on its previous close and around 2 ahead of its fair value premium to cash of minus 2. Turnover was a healthy 11,062 lots.

The traded options saw total volume of 34,175 contracts, of which 15,791 lots were dealt in the FT-SE 100 option. Forte was the busiest stock option with a total of 3,116 contracts, followed by GEC at 2,543 lots.

GB United Kingdom, EC P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 15 213
Money Markets: French futures drift Publication 930313FT Processed by FT 930313

ATTENTION in the money markets shifted to France yesterday, as the weaking franc caused the short end of the French futures markets to drift downwards.

The June contract Pibor futures moved by over 30 basis points during the day, although it later rallied to a closing level of 91.23.

Dealers said that the movement reflected the increasing tensions in the European exchange rate mechanism, highlighted by the fall in the escudo against the D-Mark and other currencies. The Portuguese central bank intervened early in the day in support of the currency, raising the rate at which liquidity is absorbed by 0.5 percentage points to 13.5 per cent.

Dealers pointed out that speculation that Portugal might be forced to devalue in the coming weeks was continuing to weaken the French franc and force up money market interest rates in some countries.

However, he added that the run-up to the French elections later this month was a second factor for the slide.

'The Pibor will remain very volatile into the election and probably after it,' he said, predicting that 'there could be some nasty days next week' in the French money markets, with short-term interest rates likely to be heavily squeezed in the days before the first phase of the election next weekend.

At the longer end of the French market futures were considerably firmer, closing slightly up at the end of the day. Dealers suggested that this was due to speculation that the French franc could gain from any fall in the value of the D-Mark sparked by a new crisis in Russia. 'It's Russia that is affecting the longer end of the market, but the ERM for the shorter periods,' said another dealer.

Elsewhere in Europe, trading in German and British money markets was generally quiet, although the longer end of the German futures market firmed.

With the focus in Britain now firmly fixed on Tuesday's budget, UK interbank rates remained virtually unchanged. Although the Bank of England forecast a shortage of Pounds 1.15bn, this was successfully taken out late in the day.

Meanwhile the downwards trend in European interest rates received another small boost when the Irish Central Bank cut the rate at which it lends to commercial banks by 0.5 of a percentage point to 11.5 per cent.

FR France, EC PT Portugal, EC DE Germany, EC GB United Kingdom, EC P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 13 418
Foreign Exchanges: Franc under strain Publication 930313FT Processed by FT 930313 By GILLIAN TETT

THE European exchange rate mechanism suffered new tensions again yesterday after the Portuguese escudo fell to a record low against the D-Mark, triggering a slide in the French franc, writes Gillian Tett.

In early trading the escudo weakened to Es94.00 per D-Mark, down from its opening position of Es92.50 per D-Mark. The fall was triggered by the previous night's resignation of Mr Antonio Borges, the vice president of the Portuguese bank, and rumours that Mr Miguel Beleza, the governor might follow suit.

However, heavy intervention by the bank, which purchased the escudo at Es93.50 per mark, and raised a key interest rate by 0.5 per cent, later arrested its fall. The currency finally closed around Es92.47.

Many dealers continued to predict further falls, with some suggesting that if the Bundesbank did not lower German interest rates at its council meeting next Thursday, the Portuguese government could be forced to devalue by as much as 10 per cent.

The strains on the escudo spilled over to other ERM currencies.

'It is yet another crack in the ERM, and the indirect effect of this has been to weaken the French franc,' explained Mr Michael Feeny, market analyst at Sumitomo Bank.

The French franc weakened from an an opening position of DM3.397. Although the Bank of France was understood to have intervened heavily to prevent it falling through the DM3.4 benchmark, it closed in European trading at DM3.402.

The Spanish peseta also fell slightly on the escudo's weakness, closing against the D-Mark at Pta 71.34, down from Pta 71.24.

With uncertainty ahead of the French elections likely to raise the pressure on the franc, some dealers predicted that tensions over the ERM could grow next week.

'Next week is a pivotal week,' commented Mr Avinash Persaud, currency economist with UBS Phillips & Drew.

The dollar and D-Mark traded in a narrow band, with the dollar closing in Europe slightly up on the previous day.

Although the political crisis in Russia continued to undermine the D-Mark, this was being partly offset by the tensions within the ERM itself, dealers said.

Meanwhile the Swiss franc continued to make steady gains against the D-Mark, closing up at DM1.094.

'The Swiss franc has been the main beneficiary of the safe haven status in the Russian crisis,' said Mr Feeny. He pointed out that it had also benefited from the recent Italian turmoil, which has weakened the lira.

PT Portugal, EC QR European Economic Community (EC) FR France, EC ES Spain, EC CH Switzerland, West Europe P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 13 446
Finance and the Family: Profits roll in - Directors' transactions Publication 930313FT Processed by FT 930313 By COLIN ROGERS

DIRECTORS are seizing the opportunity of a buoyant stock market to take some very significant profits on their shareholdings. A classic example is Gresham Telecomputing. Michael Whitaker bought 600,000 shares at 10p last year, just before they started to motor. Since then, directors have taken profits repeatedly; Whitaker himself sold 100,000 at 56p earlier this year. The latest sales by Steve Purhase and Sidney Green were of 1m and 2m at 75p; they retain almost 50m between them.

Tadpole Technology came to the market in December last year when the shares were placed at 65p. Its share price performance since then has been little short of staggering. With the company already capitalised at Pounds 56m, Howard Kitchner, a non-executive director, has sold 100,000 shares at 308p. Four weeks ago, he sold a total of 72,000 at around 290p, but he still holds 660,000.

Colin Rogers, Directus Ltd

------------------------------------------------------------------------ DIRECTORS' SHARE TRANSACTIONS IN THEIR OWN COMPANIES (LISTED & USM) ------------------------------------------------------------------------ No of Company Sector Shares Value directors ------------------------------------------------------------------------ SALES Allen C&C 31,550 33 3 Amberley Misc 965,400 261 1 Birse Group C&C 80,000 17 1 Boots Stor 315,000 1,588 2* Border TV Med 25,000 25 1 Capita Group BuSe 217,161 1,032 4 Cater Allen OthF 9,995 46 1* Gresham Telecomp Elns 3,000,000 2,250 2 Hambros Merc 85,000 263 1* Harrington Kilbride Med 8,000 18 1 Leslie Wise Text 175,000 126 1 Lincoln House Misc 142,570 18 1 London Merchant Sec Prop 20,000 16 1 Marks & Spencer Stor 22,000 73 1* National West'ster Bank 36,220 160 1* Northumbrian Water Watr 38,314 223 1* Salvesen (Chr'tian) BuSe 699,564 2,707 1 Serco Group BuSe 20,975 173 1 Tadpole Technology Elns 100,000 308 1 Unilever FdMa 1,398 17 1 Welsh Water Watr 3,120 18 1 Wolv & Dudley Brew 6,500 38 1 ------------------------------------------------------------------------ PURCHASES Allied-Lyons Brew 3,500 21 2 British Aerospace EngA 35,000 93 2 British Petroleum O&G 16,000 46 1 Courtaulds Chem 4,000 23 1 RIT Capital Partn'r InTr 50,000 57 1 Royal Bank of Scot Bank 227,500 543 2 Trafalgar House Cong 27,704 21 4 Transatlantic Hold InsL 17,500 53 2 ------------------------------------------------------------------------ Value expressed in pounds000s. Companies must notify the Stock Exchange within 5 working days of a share transaction by a director. This list contains all transactions, including the exercise of options (*) if 100% subsequently sold, with a value over pounds10,000. Information released by the Stock Exchange 1-5 March 1993. Source: Directus Ltd, Edinburgh ------------------------------------------------------------------------

GB United Kingdom, EC P99 Nonclassifiable Establishments COMP Buy-in COMP Buy-out P99 The Financial Times London Page V 441
Finance and the Family: Chattels are the goods - Jennie Hawthorne tells how you can minimise liability to gains tax Publication 930313FT Processed by FT 930313 By JENNIE HAWTHORNE

INVESTORS looking for exemptions from capital gains tax often overlook the personal effects known as chattels. These comprise tangible moveable property such as furniture, jewellery, diamonds, silver, and collectibles like books, paintings and stamps. Wasting chattels, with an estimated life of less than 50 years - for example, a boat or car (not used for business) - are excluded from CGT altogether.

Even if you do not have a Cezanne in the attic or a Georgian silver tea set in the cellar, you have possibly acquired other possessions over the years. These could well have appreciated in value despite the recession. No matter whether such items came to you through inheritance or by shrewd or lucky purchases - if they can be classed as chattels, gains made on them are treated benignly by the Inland Revenue.

If you sell chattels for Pounds 6,000 or less, you pay no CGT at all. If the proceeds exceed Pounds 6,000, your capital gain is restricted to five-thirds of the excess. So, a set of apostle spoons that cost Pounds 500 and sold for Pounds 6,300 will show a capital gain equal to five-thirds of the excess over Pounds 6,000: that is, Pounds 500.

The mathematics mean that, for very large disposals, you are better off under the normal rules relating to chargeable gains. But husbands and wives each can claim the chattels exemption in addition to the usual CGT exemption for sales of other assets on which the profit does not exceed Pounds 5,800 in the tax year 1992-1993.

The past few years have brought more losses than gains for many people and even private homes, once considered a bedrock of security, have fallen in value. But this is not always true of their contents.

An old kitchen dresser picked up for a few pounds could now be worth a few hundred. A much-loved silver or dressing-table set, perhaps handed down by granny, can sometimes fetch around Pounds 1,000 today.

And first editions, which may grace your bookshelves or those of your parents, are in great demand and often sell for two or three times their purchase price.

Kenneth Fuller, of Marchpane - located in the internationally-famous antiquarian bookshop niche of London's Cecil Court - says a first (1930s) edition of PG Wodehouse, selling for around Pounds 100 in 1987, now costs around Pounds 400-Pounds 500. A first London edition of Alice in Wonderland, which could be bought for Pounds 200-Pounds 500 in 1987, now costs Pounds 1,000-Pounds 2,000.

But the real icing on the cake is that when your possessions consist of silverware, furniture, books, or any other of the items classed as chattels, each of them can qualify individually for the Pounds 6,000 gains tax exemption. The exception is when they make up a set.

What constitutes a set is a somewhat grey area and difficult to define, according to Timothy Sammons, a director of Sotheby's. The Revenue says: 'Whether a number of articles constitute a set is a question to be decided in the light of the particular facts and circumstances of each case. Six matching chairs or a canteen of Georgian silver cutlery would prima facie constitute a set.'

Thus, if a set of chairs which cost you Pounds 6,000 was sold for Pounds 12,000, there would be gains tax to pay (ignoring indexation) on the balance over Pounds 6,000. If you sold six individual non-matching chairs for Pounds 2,000 each, you would pay no tax on any of them. That might, however, be considered a trading transaction that incurs other taxes.

The best rule for taking advantage of the chattels exemption is to buy only what you enjoy and can afford, and sell only when you must. The Inland Revenue won a victory this week with a ruling by the House of Lords in the Smith v Schofield case.

In 1952 Mrs Schofield inherited two pieces of furniture which she sold for considerable profit in 1987. At issue was the order in which two reliefs from CGT should be given, namely indexation allowance, which removes post-1982 inflationary gains from the charge to tax, and time-apportionment which is a method of exempting gains accruing before April 1965, when CGT was introduced.

The Law Lords decided that indexation allowance should be applied before time apportionment, which will reduce the benefit of indexation allowance.

Richard Rees-Pulley of Ernst & Young which, with other accountants, was involved in the case said: 'It is wholly unjust that a portion of inflationary gains will be taxed as a result of this decision. As the Lords have previously said, CGT is a tax on real gains. The government should take urgent action to amend retrospectively the legislation to give proper indexation relief.'

GB United Kingdom, EC P6282 Investment Advice P9199 General Government, NEC GOVT Taxes GOVT Legal issues P6282 P9199 The Financial Times London Page V 839
Finance and the Family: Following Footsie - News in Brief Publication 930313FT Processed by FT 930313

NATIONAL & Provincial is offering a second version of its Guaranteed Equity Reserve account. This links the return to the rise in the FT-SE 100 index over five years, with a guarantee of investors' money back if the index falls.

As with most other products in this field, the investor receives no benefit from the dividend yield on the Footsie, a significant component of return over five years. The final return will be based on the average of the Footsie over the last six months of the five-year period.

N&P quotes a gross rate of 133.33 per cent of the growth of Footsie, but this is available only to non-taxpayers. Basic rate-payers will get 100 per cent of the rise; higher rate-payers will get 80 per cent and probably would be better off in an indexed unit trust. Bonuses for early investment will increase these returns slightly.

Withdrawals are allowed after one year but subject to penalties. If Footsie has failed to rise, you will lose 5 per cent of your capital; if it has increased, you will receive 50 per cent of the rise (for basic rate-payers) and 40 per cent of the rise (for top rate-payers).

The minimum investment is Pounds 500 and the issue will close on May 31.

*****

PRIVATE investors looking for information on companies - including profit, earnings per share figures and brokers' forecasts - can, in addition to the sources we mentioned last week, consider the Earnings Guide. A monthly booklet costs Pounds 270 a year and a weekly guide, for use on a personal computer, is Pounds 1,200 plus VAT. Further details from Earnings Guide, PO Box 1, Horsham, West Sussex, RH12 3YY.

*****

ENTERPRISE Zone investments, which allow full tax relief at the investor's top marginal rate of tax, have gone quiet this year. At one point, they seemed likely to overtake the business expansion scheme.

The latest offering is less glamorous than previous offerings involving Olympia & York, but probably less risky: it will buy cold storage units in Scunthorpe. Collect 1, sponsored by Terrace Hill Capital and managed by Property Enterprise Managers, will buy land in the Scunthorpe Enterprise Zone on which 63,500 sq ft of warehousing is being built. There is an agreed 27-year lease to Scunthorpe Cold Stores, with a projected rental yield of 8 per cent. Rent is underwritten by the Dibdin Group, which has assets of Pounds 19m. There is no external bank guarantee, and money has been put aside to pay the first three years' rent, plus up to two years' rent after that if necessary.

Minimum investment is Pounds 5,000, with a total capacity of Pounds 5.25m.

National and Provincial Building Society GB United Kingdom, EC P603 Savings Institutions TECH Products P603 The Financial Times London Page V 481
Travel: Beware of pelicans crossing - JDF Jones tells you how to avoid large numbers of Germans and rampant commercialism in Crete Publication 930313FT Processed by FT 930313 By JDF JONES

WE WERE delayed in Siteia because the town's pet pelican climbed on to the roof of our Fiat and refused to get down for half an hour.

There was nothing we could do. You cannot accelerate down the road with a pelican on the roof; you hesitate to take a cudgel to him, or tip him into the ditch, because he is the size of a five-year-old child and evidently of an amiable disposition.

He stretched his great scaly neck over the windscreen, gazed at me with eyes as old as Tithonus, and tapped on the glass in a welcoming manner as he posed for the ever-lengthening queue of German tourists. Then he left his signature on the roof.

Pedro the pelican will have to serve as symbol in today's Greece: something to do with the visitor's difficulty in getting away from the hoi polloi.

That sounds a snobbish way of putting it, but the problem has to be confronted head-on and I know that my Greek friends would wish me to call a spade a spade.

The fact is that the Greek tourist industry has become so successful over the past dozen years that the particular delights and wonders of the country, as savoured by the traditional traveller for a century and more, appear to be in serious jeopardy.

Greece these days - it is tempting to believe, especially in the shock of first-time arrival - is a mess, a shambles, a spiralling descent into the ugly vulgarity of mass tourism.

The country's extraordinary natural beauty is being disfigured fast by uncontrolled ribbon development; the Aegean beaches, once empty, are crammed, noisy and, too often, filthy; the villages are dedicated to 'English breakfast all day' and T-shirt boutiques; the greatest sites of antiquity, which not so long ago were visited by only hundreds in a year, now have to cope in season with thousands every day; the islands are alive with the sound of Walkmen.

Is it true? Does it matter? And, if it is halfway true, is there anything we can do about it?

Let us take Crete, as one example . . .

Crete is the largest, the mythically-richest, the most diverse and, some would say, the most beautiful of the Greek islands. It can no longer be denied that a long stretch of the northern coastline has now been colonised by the package tour, with all that implies.

There is nothing necessarily 'wrong' with this. From Heraklion eastward to Ayios Nikolaos the beaches are, mainly, good; the weather is superb; the mountain backdrop is as ravishing as you could wish; and the tourist industry has been developed to such a high point of professionalism that it takes account of every pocket. But it does not have much to do with Crete any more, and the strip between Hersonissos and Mallia provides traffic jams and featureless concrete to rival anything on the Costas or the Algarve. It caters, however, to a market that knows what it wants - and what it does not want.

The Robinson Club at Lyttos Beach, outside Hersonissos, is a perfectly good - indeed, superior - example. Robinson's is a world-wide German version of Club Med. The overwhelming majority of its 750 guests are German-speaking and they are looking not for a 'Greek experience' but for a corner of a Mediterranean field that is forever Germany: sea, sun, sport, lots of good food at northern meal-times, and all put together with clockwork efficiency.

It is not surprising that many of the guests never go out of the (securely-guarded) gates. Most of the clients are not interested in being in Greece - Crete - as opposed to a sandbank in the Caribbean or a high-walled beach estate in Spain. They have a perfect right to be uninterested in a Greek experience. Need that matter?

The same point would apply to much of this north-east part of the island. There are luxury hotels in the area, especially at Elounda, near Ayios Nikolaos. My own favourite is the Elounda Beach, where you must insist on a water's-edge stone cabin so that you look out towards Spinalonga's leper fortress over the deep and shifting seas as if from the bridge of a ship.

The only snag at Elounda Beach is that it is a touch too big for its own style; this means the food is nothing special. Again, though, you can forget easily that you are in Greece and that King Minos lived with Zeus in a big cave up on the horizon . . .

Crete is large enough to have a splendid expressway to whizz you across the northern coast but, all along it, the signs of commercial development are inescapable. Take the village of Yeoryoupolis, a long way west towards Khania. With a lazy character of its own (and an immense beach), it was a hot tip from the regulars. Now, though, it is showing alarming signs of transformation. You must always, in Crete, beware of any development which uses 'Minos' in its title.

So, what can we do to be saved? The answers are perfectly simple.

Get away from the coastal strip. This is a big, as well as a beautiful, island. Five miles inland and you are at once in the lush Cretan landscape of olive grove and orchard, cicadas and goat bells, set against the rolling black silhouette of the high mountains. (In many of the Aegean islands, try going five miles inland and you would be coming out on the beach the other side).

Get off the expressway. The 'old' road is invariably quieter, slower, more attractive, and full of those intimacies of local life which motorways are built to by-pass.

Make that slight extra effort to go beyond the deck chairs and the beach boys. Less than a mile beyond the crowds of Mallia beach, for instance, is a 1700 BC Minoan palace. There are renovated museums in Rethymnon and Siteia which put to shame the confusion (and crowds) in that great treasure house of the Archaeological Museum in Heraklion. Sir Arthur Evans' brave reconstructions at Knossos are only three miles from Heraklion, which says something about the continuing inter-relation between Greece past and Greece present.

Look for the unspoilt alternatives, which are far more frequent than you might imagine if you are recoiling for the first time from the urban jungle of Heraklion or the one-way system of Ayios Nikolaos. When you flee Mallia, for example, take a look at Milatos or Sisi, just a few miles round the corner.

Go to extremes. Use that expressway and take yourself off to the eastern and western coasts. Beyond Siteia, for example, in the far east, there is a great chunk of idyllic landscape where even the guidebooks falter and grow thin. Again, you need to be sensible. The one place to which you do not go, not any more, is the famous palm beach of Vai. This is indeed one of the Mediterranean's most perfect coves. Today, though, it is packed with beach recliners made of plastic webbing and you must pay 50 drax to visit the lavatory. I promise that you need drive only a few miles from Vai to find empty sand beaches, waterside tavernas where your fish left the water only minutes ago, secret olive groves and Minoan hill sanctuaries.

A bit further down the coast, you have the Minoan harbour palace of Zakros, at the foot of a gorge and on the edge of the beach, with a spanking new approach road to make it easy. Then you should head back inland, on to the hills and down twisting lanes until you emerge again on the south coast - and still never a sign of your fellow men.

My message is that Greece is indeed under threat but all is not lost. Until the valley below Delphi is built over with retirement bungalows, or Crete's Lassithi plateau becomes a golf course, damage will remain irritating but superficial.

The essential Greece remains, for those prepared to look for it and to make a few concessions in that search. But steer clear of Siteia's pelican. Avis is still trying to scrub the mess off the roof.

Places are available on an FT tour of Crete from May 6-16, with archaeologist Gerald Cadogan. The tour is being organised on the FT's behalf by Cox & Kings Travel (see advertisement on Page XII).

GR Greece, EC P7011 Hotels and Motels P7999 Amusement and Recreation, NEC P4725 Tour Operators CMMT Comment & Analysis P7011 P7999 P4725 The Financial Times London Page XXII 1463
Travel: Greek delight Publication 930313FT Processed by FT 930313 By JDF JONES

THERE IS another way to seek out the authentic, unspoiled Greece, and we owe it to the country's national tourist organisation for what are termed Traditional Settlements.

The idea is splendid and simple. In different parts of the country, particularly the more remote and less 'commercially-attractive' regions - such as the Mani deep in the Peloponnese - the organisation has acquired and renovated historic buildings and turned them into 'guest houses.'

They are not intended to be as ambitious or sophisticated as the paradors of Spain or the posadas of Portugal, but they have perfectly acceptable modern facilities to go with their simple, white walls, locally-crafted wooden furniture and rich, warm textiles. The buildings are a delight after the anonymous concrete of so many Greek hotels. They are, by definition, sited magnificently.

In the Mani, for example, the most dramatic towers in the famous hilltop view of Vathia turn out to be a Traditional Settlement, and you will have a positive suite of higgledy-piggledy rooms quite unlike any motel in which you ever stayed. At the other end of the country, in the forests and orchards of the Pelion, Makrinitsa has three elegant, 18th century mansions perched on the mountain peninsula north of Volos.

Back in the Peloponnese, Monemvasia - a sort of Greek Gibraltar - has a renovated former monastery deep within the walls of the traffic-free Venetian fortress. Offshore, the Traditional Settlements extend to Psara (near Chios), to Chios itself, and to a larger group of neo-classical mansions on Santorini.

This is as far as you can get from the styles of mass tourism; yet, because the guest houses remain modest, they do not have the limitations of the five-star, high-luxury alternative which is uncongenial to many of us. But a hire car is essential.

Further details from the Greek National Tourist Organisation, 4 Conduit Street, London Wl. Tel: 071-734-5997. Several UK travel firms handle the traditional settlements, including Sunvil Holidays of Upper Square, Old Isleworth, Middlesex TW7 7BJ. Tel: 081-568-4499.

GR Greece, EC P7011 Hotels and Motels P7999 Amusement and Recreation, NEC P4725 Tour Operators CMMT Comment & Analysis P7011 P7999 P4725 The Financial Times London Page XXII 372
Everest: the ultimate high - Rebecca Stephens sets off in the steps of Everest's first climbers Publication 930313FT Processed by FT 930313 By REBECCA STEPHENS

LORD HUNT, the veteran mountaineer, looked at me gently. 'Everest was not my favourite mountain,' he said 'And I doubt, my dear, it will be yours.'

Only three years ago at mount Everest's base camp, I met four French women who I thought were, quite simply, mad for wanting to reach the 29,028ft peak. Surely women had more sense. Women wanted to create life and preserve it, not throw it away for a mountain, I thought. But this week I am on my way to Everest to face the same dangers as they did in an attempt on the summit.

Our expedition is intended to mark the 40th anniversary of the first ascent of Everest by the British expedition led by Colonel John Hunt. It has been endorsed by Sir Edmund Hilary, who, with Sherpa Tensing, was the first to reach that majestic peak on 29 May 1953. Our team - the DHL British 40th Anniversary Everest Expedition - will climb by the same route they took, by the Western Cwm and South Col.

We aim to raise Pounds 1m for Sir Edmund's Himalayan Trust, a charity which helps build schools and hospitals for the Sherpa people, and conserve their The expedition will cost some Pounds 250,000. Sponsors include DHL, New York-based investment banking group The Carter Organization, Sally Ferries, Glenmorangie, Foundation for Sport and the Arts and, clothing us head to toe, Karrimor. After two years of preparation we set off this week from Kathmandu to trek through the foothills to Everest base camp. In April we shall set up camps high on the mountain aiming to climb, weather allowing, in May.

The expedition, the idea of merchant banker Peter Earl and led by John Barry, a mountaineer of some repute, is nine climbers strong. It includes names such as Bill Barker, Harry Taylor, both Everest veterans, Dave Walsh, Dave Halton, John Rowe and Dr Sandy Scott.

I am going as an amateur. In the autumn of 1989 I was at Everest Base Camp reporting for the Financial Times on an Anglo-American attempt on the North East Ridge. I did not climb; had never climbed. But since then I have become quietly obsessed, abandoning holidays on the beach for the hillier parts of Africa, Europe - climbing Mount Kenya, Kilimanjaro and Mont Blanc - and most recently Alaska, where the Everest gang climbed north America's highest, and coldest peak, Mount McKinley. The addiction takes a hold, like any drug.

And now I want to be the first British woman to reach the top of Everest. What is it about the mountain that still draws climbers four decades after the first ascent?

'Everest became rather more than a mountain,' Hunt says. 'It is so easy to idealise our expedition, but there was enormous pressure to be the first expedition - and a British one at that - to climb the mountain. All the more so because following the war we were preceded (on the mountain) by the Swiss and to be followed by the French.'

Hunt, and he suggests most of the 1953 team, agreed with the words of Eric Shipton - who until six months earlier had been leader of the expedition - when, on hearing of their success, said: 'Thank Goodness, now we can get on with some real climbing.'

In the last 40 years 469 men and 16 women have stood on the summit of Everest; 117 have died in attempts to do so. Man has climbed it solo, without oxygen, and in May of last year 32 people queued to stand on the summit on a single day.

Is the climb easier? Has Everest shrunk? Or is it that modern equipment - Gore-tex, quick-wicking fabrics which allow perspiration to escape, plastic boots, light-weight oxygen cylinders - and an advancement in the understanding of high altitude physiology has enabled climbers to overcome the effects of the drastic reduction in ambient oxygen levels and the associated susceptibility to the cold?

'It's easy to overplay the difference in equipment. I think we were well equipped,' said Hunt; though undoubtedly the net weight of clothing and oxygen then was considerably higher than it is today.

'Stoves were important,' he said; a comment that reveals quite how experimental such things were in the 1950s. The Swiss failed in 1952 because their stoves failed. The Brits knew this, and made sure that their stoves could melt enough snow to enable each climber to drink at least seven pints of liquid a day. It was revolutionary knowledge then, that it might be essential to consume large quantities of liquid at high altitude; today it is part of traditional mountaineering wisdom.

The biggest difficulty to overcome on that first ascent was, said Hunt, 'the psychological problem.'

To enter the Western Cwm climbers must first clamber up the Khumbu Icefall: 2,000ft of gaping crevasses and shifting monoliths of ice, that collapse and tumble with a whim.

'Terrifying,' said Lincolne Rowe, an artist accompanying us on the expedition, who twice has been high on Everest. 'I can say so; I'm an artist.'

In Hunt's day it had been passed only twice: 'It was a real hazard to be reckoned with.'

A greater problem still was the last 1,000ft or so to the summit: 'There was that uncertainty about man's ability to do it. The Sherpas suffered especially from those doubts, and their superstitions that they should incur the wrath of the gods for venturing above the South Col.'

It was a sacred summit: 'The monks at Thyangboche Monastery (in the foothills) quite clearly didn't want us to get to the top,' said Hunt.

On the climbers' return the monks congratulated them - for 'nearly reaching the summit.'

How different today: Ang Phurbar, the head Sherpa on our expedition, has reached the summit twice. The barrier of doubt is down.

Might a woman have been invited to climb Everest in 1953?

'Inconceivable,' said Hunt. 'Had there been a girl she would have been one of us - that would be natural, normal,' he reflected. But there were very few male climbers then, and especially few women climbers.

When the Duke of Edinburgh Scheme - of which Lord Hunt was a founding director - opened its doors to girls in 1958, it was considered their preferred pursuits might be make-up and hair-style, dress design and flower arranging, not motorcycle maintenance or potholing. This spring, eight young people from the Duke of Edinburgh Award Scheme - boys and girls - are accompanying us to Base Camp Everest, each one climbing Island Peak (20,380ft) en route.

In 1953, Hunt's expedition had Everest to themselves. This spring there will be some 20 expeditions on the south side of the mountain alone. But as Hunt chose to entitle his loosely autobiographical book, Life is Meeting. He, and Ed Hillary, George Lowe, George Band and Michael Westmacott will be rekindling their 40 year friendship at a 1953 Everest reunion in Khumbu this spring. With luck, we will meet them; and the old Everest hands will be able to throw a tips to nine modern-day aspirants, as they trek by.

NP Nepal, Asia P7999 Amusement and Recreation, NEC PEOP Personnel News P7999 The Financial Times London Page XXI 1228
Point of dispute Publication 930313FT Processed by FT 930313 By MICHAEL WIGAN

REMOTE and ancient, it rises out of the sea, in the shadow of the 1,500 ft peak of Roineval on the south east corner of Harris - a rocky headland like thousands in the Scottish Hebrides.

But Lingarabay point is not the same as all the others. Its special qualities mean it might be blown apart, pulverised and sold by the shipload as high grade aggregate in south east England, Germany and the Netherlands. In its place, when all the dust and noise has gone, will be a sea loch more than a mile square, but not a loch like all the others . . .

This grand scheme has caused an outcry from environmentalists. Yet it could bring prosperity to the island and alleviate pressures on the environment in the south of England where lobby groups have almost paralysed big mineral working applications.

Scotland, with its tradition of industrial extraction, less people and more space, may be a distant location from which to haul material, but royalties instead of Pounds 3.50 a tonne are nearer 10p.

Lingarabay is the only large and accessible British deposit of the rock anorthosite, which is especially hard and heavy. Can its removal, and substitution with a sea loch be balanced with prevailing philosophies of land use?

The government's commitment to sustainable development of natural resources is in difficulty when the resource is being developed by being deported. But language has been tortured to meet political ends before.

The matter of scenery, the Highlands core appeal, presents another teaser. Who is to say the sea loch left behind will not be pretty too? The only superquarry presently operating in the Highlands, at Glensanda on Loch Linnhe, has hollowed out a mountain from behind and inside, leaving main profiles intact.

Calnum MacDonald, MP for the Western Isles, thinks most local people would support the quarry plan if the terms were sufficiently generous. But all the expected national conservation bodies oppose the Lingarabay superquarry.

the owner of the underlying mineral rights, civil engineer Ian Wilson, presents the superquarry plan as an opportunity not a blight, and a possible saviour of the Outer Isles. He sees the quarry dust from pulverising rocks, not as a silicosis-carrying pollutant, but as a valuable mineral which, mixed with lime, could restore fertility to the island's tired and acid topsoils.

Wilson says the quarry would bring jobs in a depopulated area, stop young people emigrating, and fund a local enterprise zone. It would also provide him with a royalty on each tonne, which, with a production forecast of 10m tonnes a year, should not slip out of the equation.

d4

What makes this dispute so evocative is the pristine beauty of the site, the dearth of local employment, and the sheer scale of the plans.

Financial sweeteners are being proffered to the community council and the mining company has already offered a local concession - no working on the Sabbath.

The Western Isles Council, its finances shattered by its investments in BCCI, is considering the application. Coastal superquarries have already been embraced by the regional council's structure plan. The Secretary of State for Scotland has asked that the decision, to be referred to him. With four other coastal superquarries in the Highlands being planned, Lingarabay will be seen as a test-case.

Most commercial developments in the Highlands are opposed by retired people or getaway types with no interest in local employment. Take the case of farmed salmon cages disfiguring sea lochs, one white settler (English immigrant) declared the uninterrupted sea-view was 'a right', Which shows, perhaps, how the view colours the viewer.

GB United Kingdom, EC P14 Nonmetallic Minerals, Ex Fuels P9512 Land, Mineral, Wildlife Conservation RES Facilities RES Natural resources P14 P9512 The Financial Times London Page XXI 639
Property: Swiss snap up Joel's stud - Cadogan's Place Publication 930313FT Processed by FT 930313

This week, Gerald Cadogan, the Weekend FT's newly-appointed residential property correspondent, starts a fortnightly column of news and views on the property market:

GOOD NEWS for British racing, as the Cheltenham Festival nears, is that Swiss connections of the Marquesa de Moratalla have bought the late Jim Joel's stud at Childwick Bury, Hertfordshire.

Joel bred many famous horses including Royal Palace, Fairy Footsteps and Light Cavalry. The Marquesa, who owns Sybillin and The Fellow, currently Gold Cup favourite, may increase her involvement in racing there. Agents Strutt & Parker have not disclosed the sum. In September, when Childwick came on the market, the guide price was Pounds 2.5m.

In Ireland, at Cashel, Co. Tipperary, the late Percy Harris's Athassel Stud will be auctioned on March 31. Its best known winners are Double Jump and Maelstrom Lake. The early Victorian house comes with several yards, 40 loose boxes and 93 acres. The guide price, a fraction of Childwick's, is more than Pounds 350,000, or over Pounds 200,000 for the house alone and 28 acres. Agents in Dublin are Hamilton Osborne King (01-676-0251).

The pop world comes to market. Dave Stewart, of the Eurhythmics, is selling his London home in Randolph Avenue, Maida Vale. The house, on offer from Knight Frank & Rutley (071-629-8171) at around Pounds 500,000 freehold, looks traditional enough from the outside. Inside the stairs and halls are painted with trompe l'oeil urns and ruins.

Near Rickmansworth, in Hertfordshire, John Reid, manager of Elton John, is selling Lockwell House, built in 1911. It has masses of rooms, 15 acres and the trimmings we expect of showbiz - a newly-built leisure complex with gymnasium, sauna and billiard room (complete with film screen descending from the ceiling), tennis court, swimming pool and floodlit helicopter pad. It could be yours for around Pounds 1.95m, through Savills (071-499-8644).

At the opposite extreme a sixth-floor studio, with bathroom and kitchenette, in a portered block in Grosvenor Street, London W1 would be ideal for a regular visitor who does not want to pay hotel bills. And the price? Chestertons Residential (071-629-4513) invites best offers over Pounds 40,000 by noon on Thursday March 18.

The following day best offers over Pounds 200,000 close for a Grade II manor house at Bittadon Barton in north Devon, with John Smale in Barnstaple (0271-42000) and Knight Frank & Rutley in Exeter (0392-433033). It is a 17th century building with splendid outbuildings but needs money spent on it. The agents have found that informal tendering works well for properties needing investment and two recent properties in Devon have easily exceeded the guide price.

For the last six weeks anyone wanting to repair a property but needing access via a neighbour's land, has been able to apply to the courts for an access order. The Access to Neighbouring Land Act 1992 allowing people on to others' land to carry out basic preservation to their own property, came into in force on January 31. Simmons & Simmons (071-628-2020) has issued a note explaining how it works entitled Love Thy Neighbour.

Halifax Building Society has published its second House Names Survey. The top five, with the first three the same as in 1988, are: The Bungalow; The Cottage; Rose Cottage; The Lodge and Hillcrest. Shangri La, Chez Nous and Casa Mia are still popular, but Dunroamin is restricted to Scotland, south east England and Yorkshire.

GB United Kingdom, EC P6531 Real Estate Agents and Managers P65 Real Estate MKTS Market data COSTS Costs & Prices RES Facilities P6531 P65 The Financial Times London Page XX 606
Property: Where have all the aunties gone? - Rambling old houses can gain from the extended family Publication 930313FT Processed by FT 930313 By GERALD CADOGAN

IN NORTH-WEST England house styles are diverse; from the brick houses and the black and white half-timbered confections of Cheshire, to the rough stone cottages of the Lake District, there is property to suit all tastes.

The M6 and its connecting motorways hold the region together, making it easy to travel south or across the Pennines to Yorkshire or further north to Scotland. Manchester's newly-enlarged airport is another plus for the region.

For amusement and culture the choice is equally varied; from Blackpool illuminations to the museums and galleries of Manchester and Liverpool. And do not miss the treats in smaller civic collections, bought with profits derived from the heyday of Lancashire's cotton industry.

Sportswise you are spoilt for choice; football, rugby league, cricket at Old Trafford, the Grand National at Aintree, lake sailing, fell walking, fox hunting or pony trekking are on offer. That will stimulate your appetite for a farm tea - or dinner at Sharrow Bay, Ullswater - as you rest your limbs and dream of Wordsworth, daffodils, Beatrix Potter and Ruskin.

Winter life in the Lake District can be far from a dream. Most cottages and houses are built low to be out of the wind, the cottages usually dug into the bank and tucked under the fell. They look idyllic in summer. But winter means clouds hanging on the hills, and down in the dip no sun for weeks on end. Can you survive that?

Flash flood becks appear after a downpour and are through the back door before you can blink. Are you prepared? Before buying, check carefully the direction the house faces - north may be too gloomy - and find how much rainfall that particular part of the lake has, as it can vary sharply within a few miles.

In summer be ready for tourist traffic; cars take maybe 25 minutes to get through Ambleside. If you still want the lakes and a traditional cottage, then Side Cottage at Patterdale - Lowther Scott-Harden at around Pounds 190,000 - is a charming example. In the next price band the company offers the attractive white-painted 19th century Garth House at Skirwith in the Eden Valley at around Pounds 225,000, and the solidly Victorian Lane Hall at Weasdale for Pounds 265,000.

Sparket Mill, at Hutton John near Ullswater, a complete water mill with a kiln for roasting corn that worked until the 1970s (mostly oats for oatmeal), up to 20 acres, and fishing rights in the beck (trout and sometimes salmon), is on offer at over Pounds 250,000. It is a surprise that the agents still suggest that larger houses have a use as country house hotels, since so many have ended up in receivership.

An alternative might be the use of such homes for extended families. If only they could manage to unite and move back to use them as they were intended. But where have all the maiden aunts gone?

Turn-of-the-century Fayrer Holme at Bowness-on-Windermere has 11 bedrooms (10 with their own bathrooms), and planning permission for a hotel. Cluttons offers it at around Pounds 695,000, and similarly the Georgian Rusland Hall near Newby Bridge at Pounds 850,000.

Rusland is where the author Arthur Ransome, of Swallows and Amazons fame, is buried. More intriguing, and cheaper at Pounds 295,000, is Thackwood Nook near Carlisle, dating from 1681 and one of the two remaining Red Spear houses in the country. These were armed manors the local yeomanry held against border attacks.

In Staffordshire the superb Grade I Elizabethan/Carolean black and white Broughton Hall that belonged to the Delves Broughton family is now owned by an order of nuns who have made its 20 bedrooms into 34. Broughton could also become a hotel. Strutt & Parker offers it at around Pounds 750,000, with a cottage for about Pounds 125,000 more.

In Cheshire, Pinfold House (in brick) at Marthall comes with masses of stabling and a handy position for Manchester and the airport. Meller Braggins offers it with Jackson-Stops for about Pounds 695,000. A cheaper house with stables is Granary Farm, at Hawarden (Gladstone's country), 10 years old, in traditional style, and with a jacuzzi (Strutt & Parker, around Pounds 250,000).

More austere than either of these is the imposing Grade II* 17th century Alvanley Hall near Chester, built of stone to make clear its importance (Jackson-Stops, around Pounds 250,000).

Further information from: Cluttons, Carlisle 0228-74792 and (London) 071-408-1010); Jackson-Stops, Chester, 0244-328361; Lowther Scott-Harden, Penrith, 0768-64541; Meller Braggins, Knutsford, 0565-632618; Strutt & Parker, Chester, 0244-320747 (also 071-629-7282).

GB United Kingdom, EC P6531 Real Estate Agents and Managers MKTS Market data COSTS Costs & Prices P6531 The Financial Times London Page XX 800
Fashion: Hats off to the City sober-sides - Dressing for the Professions / The Banker Publication 930313FT Processed by FT 930313 By RICHARD RAWLINSON

Only a fool would pretend that how you dress does not matter. And nowhere is it more important than in the workplace, where your clothes send out a clear message to colleagues and clients. Every profession has its own nuances. To the outsider they may seem arcane, even pointless; to the insider they show fine distinctions of attitude. Here Richard Rawlinson, in the first of a new series, cracks the code of City Man - and City Woman.

THE CITY'S equivalent of the bra-burning woman of the 1960s was the merchant banker who left his bowler hat at home. In the City of London, social revolution stands aside for subtle evolution. But evolve it does, and the transition from the extravagant Eighties to the nervous Nineties is as clearly defined as the stripes on a New & Lingwood shirt.

Gone are the wide red braces inspired by Gordon 'greed is good' Gekko of the film Wall Street. Gone, too, are the brashly-coloured silk linings of power-shouldered suits. The popular image of the yuppie, making easy money over the mobile telephone while driving his Porsche down the Strand for a four-hour lunch at the Savoy, is now a distant symbol of the Thatcher decade.

The Square Mile of today is a much more sober place than it was a few years ago. A combination of enduring recession and a string of high-profile fraud scandals has transformed bankers into a more humble breed, reflected by their increasingly sedate dress codes.

The cult of the individual is eschewed in favour of faceless, corporate operators. When a young and snappy Warburg Securities employee inadvertently appeared in a photograph on the front page of the Financial Times at the launch of the British Telecom privatisation, he was reprimanded by a superior. Flamboyant dressers are suspected of egotism and rebellion and, with fewer jobs on the market, bankers can see the sense of keeping a low profile and presenting themselves to clients as studious advisers.

Bold pinstripes have been toned down to chalkstripes or to navy or grey herring-bones and grey birds-eyes. Prince of Wales checks, which crept in among a few daring bankers in the 1980s, are now reinstated as spectator sportswear. If any British banker envied US counterparts at Goldman Sachs and Chase Manhattan their summer suits in cool cotton tan, they have now lost all hope of ever being accepted at work in such informal attire.

Wide striped shirts have also given way to narrow stripes or plains in pale blues, pinks and creams. Classic gold cufflinks are now prefered to the frivolous Mickey Mouse links of yesteryear. Gentlemanly grey socks have replaced the once familiar flash of garish colour between polished, black Church's shoes and trouser turn-ups. Only ties remain as the last bastion of self-expression, with circus animal prints by Hermes - or imitations by Thomas Pink - replacing polka dots and paisleys as the ultimate in City chic.

Lazards merchant banker Simon Pryce confirms that what was de rigeur a few years ago is no longer acceptable. 'A colleague wears a paisley-backed waistcoat which is considered outrageous,' he says. 'While there is still a lot of money in the City, the emphasis is away from flaunting wealth towards buying well-cut, well-made, classics which will last a long time.'

In a nutshell, the understated style of the traditional British gent, which has always reigned supreme among the predominantly public school and Oxbridge-educated City establishment, is back on top. While some younger bankers were carried away on a wave of internationalism during the designer decade, they have now come back to their roots.

However, it is, perhaps surprisingly, not Savile Row and Jermyn Street which are the main beneficiaries of the preeminence of le style anglais. The emergence of small bespoke tailoring business - usually run by enterprising county girls operating from Fulham - are catering for busy bankers by taking business to their offices. Similarly, mail order shirt companies such as James Meade are increasingly popular among people who have little time for high street shopping.

Gerry Grimstone, senior director of Schroder Wagg, has his suits made by the similarly named Georgina Grimston, whose company employs former Savile Row tailor Leo Costanzo, formerly of Huntsman and Henry Poole.

'People want better value for money as well as quality,' he says. 'They also want the convenience of being fitted at work or at home instead of having to waste a Saturday afternoon at the tailor.' Georgina Grimston's suits sell from Pounds 600 to Pounds 800 with an extra pair of trousers, compared with Savile Row price tags of around Pounds 1,500.

Rosemary Richards, another tailor, confirms the renewed conformity in City dressing but adds that suggestive selling during fitting sessions can leads to clients risking more adventurous styles. 'Most bankers say they just want to look like everyone else in the office, but when we say that the narrower leg is back in fashion and that single breasted suits are more popular than double breasted ones, they often agree to experiment with cut.'

The status quo does not change very much when applied to women in the City, even though there are fewer rules dictating their appearance. While some overtly fashion-conscious women hold senior positions, most adhere to the men's uniform of suits and pale shirts. These are then usually accessorised with reassuring pearls and flat, black, patent leather court shoes.

Penny Scott, corporate finance manager at Hambros, says: 'I don't want to go into a meeting and be noticed for ostentatious clothes. I want to be noticed because I do what I do well. If I wore a short skirt, people would think about my legs and not my brain.'

Scott owns eight bespoke suits ranging in colour from plain grey, blue and olive green to a cherry red jacket with a black velvet collar which is teamed with a black skirt. 'I may wear a dress if I am dining with clients in the evening,' she says, 'but separates are more practical for work. They can be mixed and matched and do not require as much dry cleaning.'

Pressure to conform is, on the whole, a cause of amusement rather than irritation for most bankers. Anecdotes about the Square Mile's snobbery and archaic traditions are always being exchanged. There is the one about the new Lazards director who arrived with facial hair and was introduced as the 'currently bearded' Mr . . . . There is another about Warburgs men ordering two suit jackets, one of which is hung permanently on their chairs so that bosses think they are working late. They say one can spot senior figures as they do not carry brief cases or umbrellas, leaving that to their chauffeurs.

Considering the rampant uniformity, bankers are also remarkably interested in each other's sartorial choices. One Cazanove employee, who wished to remain anonymous, said that more financiers were wearing white Calvin Klein underpants nowadays than the colourful boxer shorts prefered in the 1980s. How did he know? 'We talk about that sort of thing in the wine bar after work,' came the reply.

David Burns, 43, is director of the London office of Banco de Progreso in the City and is keen on off-the-peg suits. He says: 'On the whole, as I seem to be a standard size and I don't like spending a lot of money on what are, after all, my working overalls. I travel a lot and generally buy my suits at Brooks Brothers in New York where I pay somewhere between Pounds 300 and Pounds 350 a time. But I do own a couple of Hackett's ones which cost rather more but which I particularly like to wear when I want to look very English.

'I'm more particular about my shirts and ties. I buy my shirts from Crichton in Elizabeth Street - their shirts are very like pukka Jermyn Street ones. I like the colours and the fabrics and they're just Pounds 25. Some of my ties come from Crichton, some, inevitably, from Hermes, and if I want to look colourful my Garrick Club tie. My shoes are from Church's.

'On the whole we have to be fairly sober-suited here so there isn't too much room for flamboyance or innovation.' David Burns is photographed wearing a wool dark grey herringbone suit from Brooks Brothers and a shirt from Crichton. His tie is by Coruzzi, Piazza Meda, Milan. Crichton is at 34 Elizabeth Street, London SW1.

Penny Scott, of Hambros, wears a grey flannel suit by bespoke dress designer Philippa Robertson; pink shirt by Thomas Pink and shoes by Carvela from Harrods

GB United Kingdom, EC P23 Apparel and Other Textile Products P56 Apparel and Accessory Stores TECH Products COSTS Product prices P23 P56 The Financial Times London Page XIX 1488
Fashion: Grunge to grab the grown-up glamour girls - The shock value has been tamed, but faded and floppy is still the in thing Publication 930313FT Processed by FT 930313 By AVRIL GROOM

ARE YOU frightened of flares? Does grunge fail to grab you? If that is how you feel about this spring's much-hyped floppy, faded look, think what it is like for the stores which have to try and sell the clothes.

The young, who will embrace this 1970s-inspired style with open arms, will go for a mix of chain store, DIY and second-hand. But real spending power lies with a more sceptical, conservative market. Many will remember a similar look from last time round and will take some convincing that they want to wear it again. So the problem presently exercising minds among buying and display departments is 'grunge for grown-ups - how to make it wearable.'

Buyers for leading stores all believe that there is a market and that by summer the customer will forsake power tailoring for a softer, layered, more muted style - provided it is presented in a way which she finds believable.

Quite why British women of a certain age should wish to express solidarity with a look that originated in young street musicians from Seattle and avant-garde designers from Paris venting their anger at the consumerist values of the late 1980s may look like one of fashion's mysteries. But it is a classic example of the way in which trends evolve.

An idea with shock value, often politically-motivated and created by improvisation, catches the imagination of designers with street credibility, who use it in their collections to attract media attention. The consumer thus becomes aware of it and, by the time it is filtered through the modifying hands of mass-market manufacturers, she is used to seeing it and happy to wear it.

The consumer probably knows little and cares less about its philosophical origins but according to Ruth Chapman of Matches in Wimbledon, south west London, an experienced filterer of trends: 'She knows something new is happening and she wants to be in there'.

Besides which, seeming unalert to current trends could imply that you are out of date in other areas of your life including - horrors] - your profession, hence the pressure to adapt to the new.

The shops are under another pressure - the simple one of meeting sales targets. It is up to them to make a radical idea irresistible to the shopper. Geraldine James, designer separates buyer at Harrods in London, has found this easier than expected. Initially somewhat suspicious of the grunge look, she has found herself 're-ordering flares and flower-sprigged frocks each week since the sale ended. People are delighted to find a really fresh look after years of the short-skirted suit.'

The outfit she put together for us - black flares, a ruffled shirt and patchwork sleeveless jacket - may look quite extreme but, as she points out, it is open to many interpretations.

'You can take each element separately,' she says. 'Flares are a basic component but try them in a soft fabric like crepe or jersey, which won't grip your upper thigh or jut out abruptly, with a long, fitted jacket already in your wardrobe. Look critically to check the proportions are right. The soft shirt can go under the same jacket. Patchwork is a strong 1970s theme but a lot of people already own a plain sleeveless jacket or waistcoat which can go with that soft shirt.'

It is, she says, a question of rethinking an existing wardrobe rather than investing heavily in new pieces. 'Find something with a soft, lacy or transparent effect to go under your jacket, rather than a crisp shirt. And most people already have a flowery frock, so now think about layering it - putting a skinny T-shirt under and a little waistcoat or cardigan over.'

For Ruth Chapman, softness is the crucial point. 'My customers will see grunge as ease and fluidity rather than that scruffy waif-like look. The one essential buy is a floppy cardigan or waistcoat to replace the jacket. Wear it over soft layers, preferably chiffon, and you have a new, very feminine look which men far prefer to power dressing. I think a smart silk cardigan looks just as good for work as a tailored jacket. Mixed print is also a strong look which is fine as long as you stick to two neutral colours like black and beige or navy and white.'

At Fenwick, 'accessories make the look', according to Cathy Harris, buying manager. 'You can go as little or as far into the 1970s thing as you want just by adding accessories to a few basic pieces such as a print frock or wide, soft trousers. That way you update without spending a lot.

'The basics are hats - floppy-brimmed straws or crochet berets, a long scarf tied round head or neck, long ropes of glass beads, wire-framed or small-lensed sunglasses and espadrilles or clogs. But whether you allude to the style with one item or load the lot on is a matter for the individual.'

Joseph Ettedgui, of Joseph, in London's Brompton Cross, believes that the aesthetics of proportion will win women over to the softer look. 'You only have to try on shoes with a small platform to realise they look better with wide, soft, maybe even flared, trousers,' he says. 'The easiest way to get the look is with knitwear because it is so soft. We have done knitted flares with a skimpy waistcoat top to give the right proportions. But we have also put the same unreconstructed details, like seams on the outside, on more conventional shapes.'

Even chain stores are on the soft and floppy bandwagon. Marks and Spencer is doing brisk business with flares, while Principles set the tone well with a spring brochure full of ruffle-collared jackets and soft fluted dresses.

But, as the so-called supermodels are discovering, it is not just the clothes that set the look. 'Big hair' is definitely out, but if the prospect of lank, centre-parted locks is just too dreary, a smooth bob to the collar or shoulder-length looks good, as does a short feathered cut if you have the requisite gamine bone structure.

Make-up is as soft as chiffon, with pale or brown-tinted lipstick and plummy, Biba-esque eyeshadow colours applied with the lightest of touches. But painted-on lower lashes and false eyelashes should remain the preserve of those for whom the 1970s are a new trip.

GB United Kingdom, EC P23 Apparel and Other Textile Products P56 Apparel and Accessory Stores TECH Products P23 P56 The Financial Times London Page XVIII 1114
How To Spend It: Pulling the rug from under your feet . . . - Lucia van der Post keeps her nose to the ground in search of carpets - and finds some which are simply too interesting to go on the floor Publication 930313FT Processed by FT 930313 By LUCIA VAN DER POST FOR MANY people rugs are more than just a floor-covering

they are an art-form, beautiful, useful, and, once hooked, collecting them becomes a life-long obsession.

Buying rugs is fraught with traps for the ignorant or the unwary but for those who long to know more about them Alastair Hull and Jose Luczyc-Wychowska have just produced a sumptuously illustrated book - Kilim, The Complete Guide (Thames and Hudson, Pounds 36) - which looks at their history and origins, and the varying techniques and designs that go to make them up.

Besides being a visual guide to the multifarious designs found in these beautiful flat-weave carpets, questions such as how to collect and care for them and where to find a dealer have been addressed. Anyone embarking on even the simplest purchase would do well to buy this book first.

When it comes to buying rugs it is as well to define what you really want. Those, for instance, who are looking for attractive, affordable floor-coverings rather than rare works of art might like to know about David and Sarah Richardson who have set up a carpet shop in Sussex (26 Southgate, Chichester. Tel: 0243-533025). They specialise in offering well-made, affordable modern rugs. They do get the occasional antique and are always happy to look out for special pieces for customers but the bulk of their stock is modern rugs from Turkey, Persia and Afghanistan.

They buy directly From Turkey to keep the prices as low as possible and all the rugs are made in the traditional way, hand-woven, hand-knotted, from good quality wool using natural dyes. Some are slightly sun-faded as the current taste runs to colourways that are gentler than the dyes.

The Richardsons buy from three main carpet-producing areas - Dosemealti (lots of reds, blues and bottle greens with touches of ochre), Kars (in the Armenian part of Turkey where the rugs are based on old Caucasian designs - very bold but in soft, rather pastel colours as in the rug photographed below right and Milas in Anatolia (here designs are often based on stylised tree-of-life motifs or flowering diamonds within a prayer-mat format).

You could buy a small rug (4 ft by 2 1/2 ft) for about Pounds 110 while for about Pounds 400 you could find a a 7 x 5.

Apart from the rugs, the Richardsons sell kilim covered furniture, everything from footstools (starting at about Pounds 110) to sofas. When in Turkey they buy worn rugs and always have a supply so that customers can choose something to suit their own schemes.

Another supplier worth knowing about is Christopher Legge Oriental Carpets, of 25 Oakthorpe Road, Summertown, Oxford. He is the chap to go to for old tribal and village rugs, whether Hamadans, Belouches, Afghans, Q'ashgais, Turkomans or Caucasians. Like everybody else, though, he has found the supply of quality old rugs dwindling and he also sells top-class modern rugs such as Gabbehs from Iran and those made under the Dobag project in Turkey (Dobag being a government initiative to reintroduce traditional methods of weaving and dying).

Prices range from small mats costing between Pounds 40 and Pounds 50 and a large old piece selling for Pounds 5,000. In between you could find a 3 ft 4 in by 2 ft 5 in rug for Pounds 195, a 5 ft by 3 ft 7 in for Pounds 395 and an 11 ft by 7 ft for Pounds 2,500.

Christopher Legge will also clean and restore. Cleaning costs Pounds 35 a rug up to 24 sq ft and thereafter 50p per sq ft (plus vat).

Stothert Kilim Covering is not so much a source of kilims, more a place to go for kilim-covered furniture. A wonderful way of using rugs that are too old or frayed to survive underfoot, Stothert will use any of your own pieces for covering cushions, pouffes, sofas, stools or chairs. For those who do not happen to have any dilapidated rugs Stothert is also offering all his designs covered in his own kilims.

As you can see from the photograph here (bottom right) the pouffes make exceedingly attractive portable informal seating and doubles as an informal table, as well, somewhere useful to store the magazines or newspapers, hold the cup of coffee or rest the legs.

Kilim cushions start at Pounds 14.30 for the smallest and go on up to Pounds 56 for the largest, the pouffes start at Pounds 105 for the 18 in by 12 in high size and up to Pounds 285 for the largest, 34 in by 14 in.

Equivalent prices if you supply your own kilim (or indeed any other fabric, for kilims are not obligatory) are Pounds 92 and Pounds 124.

Armchairs are Pounds 725, while two-seater sofas are Pounds 1,300. For those who have had enough of kilims, it is worth knowing that Stothert also offers a range of tartan cushions, neatly finished and piped for prices starting at Pounds 14.30. Stothert Kilim Covering operates from Saltcote House, Glasson Dock, Lancaster LA2 OBS. Tel: 0524-844078.

Finally, if you have a rug or carpet, no matter how modest, that is showing signs of wear and tear, that has suffered the usual fate of carpets in households where real-life goes on, then you might like to know about Behar Profex. A family business started some 80 years ago, it cleans, renovates and restores.

While it does a lot of grand work, restoring treasured heirlooms and valuable museum pieces (English Heritage, the National Trust, Christie's and Sotheby's are all customers) it is equally happy to take on pieces of more modest lineage.

The company will do everything from a simple cleaning job to a full-scale restoration; it has restored a rug nibbled by mice, and removed stains from a collection of Turkish rugs stained by flooding.

Prices vary according to rug size and complexity of work but the starting price for cleaning a small rug would be about Pounds 50. Contact Behar Profex at The Alban Building, St Albans Place, Upper Street, London N1. Tel: 071-226-0144.

GB United Kingdom, EC P5713 Floor Covering Stores TECH Products TECH Standards COSTS Product prices P5713 The Financial Times London Page XVII 1084
How To Spend It: Open house on design solutions Publication 930313FT Processed by FT 930313 By LUCIA VAN DER POST

IF YOU are interested in the latest looks for hearth and home than you might like to know that, from March 21 to 25, 24 showrooms in Chelsea, London, will be holding open house from 10 am to 5 pm every day. All you need to do to join the design caravanserai is to visit any of the participating companies - there you can ask for a pass and from then on be transported from showroom to showroom courtesy of Vauxhall Motors.

Companies range from old-established and respected traditionalists such as Colefax and Fowler and Nobilis-Fontan to more recent arrivals on the decorating scene such as Jane Churchill and Beaumont & Fletcher. All will be showing the latest hot looks for the house. If you want details on Chelsea Design Week (as it is called) write to Chelsea Design Week, 12 Hillgate Place, London, SW12 9 ER enclosing an sae.

Heated mirrors sound like one of those simple ideas that leave one wondering why nobody thought of it before. We all know that irritating moment after a good hot bath or shower when we find the mirror is all steamed up, making shaving or putting on make-up becomes hazardous.

Now Malcolm Syme has developed a range of heated mirrors - as pictured below right - which solve the problem. Connected to the lighting circuit, each mirror has a heating element which starts warming the glass when the light comes on and so prevents it steaming up. They come with or without primed, pine or 'old gold' frames, with their own Razorlight, or plain so that you can choose a surround of your own.

Sizes are 420 mm wide by 500 mm high, 515 mm wide by 590 mm high or 420 mm wide by 565 mm high. Prices start at Pounds 99.95 and include instructions, two screws and one electrical connection. The mirrors are available at Solaglas of Coventry and Dawson & Gibbons, 55 Red Lion Street, London WC2 as well as by mail from The Heated Mirror Company, Sherston, Wiltshire SN16 OLW. Tel: 0666-840003.

Traditional Belfast Sinks - solid, plain, sturdy, as pictured above right - are much sought-after in certain decorative circles. Some prefer them plainest of all in white but there is now a range of colours and sizes to choose from. From the smallest, 24 in by 18 ins by 10 to the largest, 36 ins by 18 ins by 10, they come in Delft blue, ivory, stone and cane. Prices range from Pounds 72.64 to Pounds 180. For details contact Ceramic Traditions, Bullers Lane, Hoddlesden, Lancashire BB3 3 NX. Tel: 0254-761500.

For those who love antique linens but have neither the time nor the know-how to track them down Penny Kempton has the answer - she has a range of bedlinen made to her specifications in China, all based on authentic antique designs. Many are replicas of Edwardian and Victorian designs, all are hand-worked and most include hand-embroidery, drawn threadwork or crochetwork.

Penny Kempton started commissioning antique designs because of ever-increasing prices and the difficulty in tracking down original antiques. Everything is pure linen, which means they are not cheap but they are good value - a linen top sheet costs Pounds 199 and a linen pillowsham with drawnthread work and crochet edging is Pounds 34. There are embroidered duvet covers (from Pounds 94 for a double) with matching pillowcases (from Pounds 22 for standard, or Pounds 28 for continental size of 26 ins by 26 ins) as well as hand towels, place mats, napkins and the like. They can be bought by mail (a free brochure is available from Penny Kempton, Antique Designs, Orchard Farm, Antrobus, Cheshire CW9 6JY, tel: 0565 777376) or from 50 stockists in the UK. Ring Antique Designs for your nearest one.

GB United Kingdom, EC P7999 Amusement and Recreation, NEC TECH Products P7999 The Financial Times London Page XVII 669
Food and Drink: Cheap, fresh - and quick - Cookery Publication 930313FT Processed by FT 930313 By PHILIPPA DAVENPORT

THE IDEA of being able to stop off on the way home from work to buy a ready-prepared meal is appealing. Pop it into the oven, take a shower, put your feet up with a drink and, presto, dinner is served.

That is the theory. But what separates this dream from reality is quality. Every supermarket and high street chain now has menus that are supposed to satisfy career-minded business people who are too tired to cook. The trouble with mass-produced food, however, is that it is mass-produced.

Monosodium glutamate, onion powder, colourants, stabilisers and other undesirable additives are much less rampant than they used to be, thank goodness. Even so, chill-fresh dishes conceived in central kitchens for network distribution tend to fall flat. Prepared on too large a scale to bear the imprint of any one cook, and more concerned with shelf life and uniformity than good textures and tastes, they lack any real character.

Blessed are those who live in neighbourhoods with a friendly deli-cum-traiteur selling good hot food. Charcuterie, cheese and salads are all very well in summer, but body and soul need something more warming in unpredictable March.

Such shops, usually owned privately, tend to cater the way we do at home. Fresh foods are cooked today for eating this evening. Recipes are personal and flexible. Pots are stirred and tasted, with ingredients added and seasonings adjusted along the way.

For those without a shop like this, self-catering seems the only solution. The quicker the recipe, the better when the cook has already put in a hard day's work at the office. And many people will agree that spending a little more than usual on ingredients is well warranted when you want a good meal - fast.

To major on such ingredients as scallops, steak, duck breast or calves' liver could strike you as extravagant - but is it? In practice, home-cooked dishes using these are likely to cost no more than mediocre meals from high-street multiples.

If, on the other hand, you cook a quick recipe based on such ingredients as chicken livers, herring roes, mackerel or pasta, you can enjoy a high-speed meal at bargain basement prices - just right when Budget day looms.

SALMON UNDER A CRUST (serves 2)

A green vegetable such as broccoli, lightly-steamed spinach or French beans, goes well with salmon cooked this way.

Ingredients: 1 tail fillet of salmon weighing 8-9 oz; 1 1/2 oz fresh bread crumbs; 1 small shallot; the finely-grated zest of half a lemon; 1 tablespoon each chopped chives and parsley; 1 1/2 teaspoons chopped tarragon; extra virgin olive oil; freshly-squeezed lemon juice.

Method: Chop the shallot finely and soften it in 1 tablespoon of olive oil. Away from the heat, add 2 teaspoons lemon juice, then stir in the crumbs, lemon zest, herbs, some salt and pepper.

Skin the salmon and brush it all over with a scant teaspoon each of olive oil and lemon juice mixed together. Lay the fish, skinned side up, on a grid laid across the gratin dish in which you will serve it, and grill for about 4 minutes under moderate heat.

Turn the salmon, then sprinkle and press the savoury breadcrumbs lightly over it. Never mind if some of the crumbs fall off the fish into the dish; they won't be wasted. Slip the dish back under the grill and cook for 3-4 minutes more until the salmon is just cooked through, but still moist and tender, under a crust.

MUSTARD MACKEREL (serves 2)

This is an even more effortless recipe. It comes from Nigel Slater's Real Fast Food, about which I enthused in my Christmas round-up of cookbooks and which has been shortlisted for the Andre Simon award.

Ingredients: 4 mackerel fillets (2 mackerel); 2 tablespoons whole-grain mustard; 1 tablespoon olive oil; the juice of half a lemon.

Method: Oil a shallow ovenproof pan lightly. Mix the mustard with the lemon juice and olive oil and spread it over the mackerel fillets. Lay the fillets, skin side down, in the pan and cook them in an oven heated to 425'F/220'C (gas mark 7) until tender enough to cut with a fork: say, 8-10 minutes.

Lift the sizzling fish out of the pan and serve with a watercress and blood orange salad and good wholemeal bread.

GB United Kingdom, EC P20 Food and Kindred Products TECH Products P20 The Financial Times London Page XVI 754
Food and Drink: Capital eats in Paris - Nicholas Lander enjoys three memorable meals in a day Publication 930313FT Processed by FT 930313 By NICHOLAS LANDER

IT IS not easy to recommend restaurants in Paris as everyone seems to have a favourite. But, with the pound at such a low exchange rate against the franc, here are three distinctive restaurants that may make any trip to that delightful city no less expensive but more memorable:

Breakfast. Cafe Le Flore, 172, Boulevard St-Germain.

Opposite Brassserie Lipp and next to Les Deux Magots, an other famous Parisian cafe, Le Flore has been second home to many famous literary figures, Huysmans, Sartre and de Beauvoir.

Its croissants and pains au chocolat are excellent; the coffee and hot chocolate are strong and dark and the red banquettes offer comfort and discretion. The waiters are suitably discreet, too. I sat and felt much aggrieved as, on the next table, a middle-aged man introduced his much younger fiancee to the waiter, also a Nicholas, rather than to me.

Any table near the entrance of the cafe's small kitchen offers the chance to overhear the waiters' barked orders - 'un cafe, deux espress' and, even at 9am, 'deux bieres' - because the waiters, as in so many cafes, do not bother with order pads.

Lunch. Chez Georges, 1 Rue du Mail, tel 42 60 07 11.

A restaurant that offers the definitively bourgeois cooking of the Lyonnais area. It is near Place des Victoires in the 2nd arrondissement.

You should lunch there for those very French dishes - rillettes of pork, fromage de tete, coq au vin or blanquette de veaux - and, also, for those unforgettable French restaurant sights such as a table occupied by one woman, wrapped in a fur coat with a poodle at her feet, happily moving through a large, bloody steak, a bottle of red wine and a packet of cigarettes.

Chez Georges, too, for a unique style of service. Le patron, dressed in a chef's jacket, greets you although he handles nothing more than than a credit card processing machine which sounds the only discordant note in a busy room where the decor does not seem to have changed for 50 years. He then hands you over to one of half a dozen waitresses who are comforting, swift on their feet and in control. As I walked past the entrance to the kitchen I overheard one waitress telling the chef, firmly, that when she cooked kidneys at home, she cooked them in quite a different manner.

Fish included an escalope of salmon with sorrel, fillet of turbot with chanterelles mushrooms and noodles and sea bass with a beurre blanc. The house speciality was profiteroles filled with ice cream and a hot chocolate sauce. Cheeses are excellent. Across the road is one of Paris's oldest, and most picturesque, patisseries, Au Panetier. Cost is Pounds 25-Pounds 30 per head as long as you stick to their good cru Beaujolais served in pitchers.

Dinner. L'Ami Louis, 32 Rue de Vertbois, tel 48 87 77 48.

This restaurant which, in its 60 years, has been owned by the original Louis, then Antoine and now by a younger Louis, manages to do things I have seen nowhere else in the world.

Your coats are taken and thrown on to a shelf that runs down both sides of the dining room (the gap between the two lines of tables is exactly the width of Louis's shoulders) the descent to the lavatories in the basement the steepest I have ever navigated (do not let go of the rope handle) on the dining tables napkins almost the size of tablecloths are provided and French bread, sliced horizontally and grilled is borne to your table as a six-inch tall edifice, only outdone by the frites which arrive, in the shape of a bee-hive.

All the cooking is done on an ancient, wood fired range. When I was introduced to the chef as a former restaurateur the only question he asked was whether my stoves were wood-fired. He walked off in disgust when I told him they were gas. There is no concession whatsoever to vegetarians. The only accompaniments to the massive plates of food are a simple green salad and watercress for a garnish.

L'Ami Louis is run on three principles. Firstly, it buys only the best ingredients irrespective of cost. Then it cooks them simply and serves them with unflinching generosity. My roast chicken, cooked with as much butter as chicken, was moist and delicious. Snails and slabs of foie gras were large, and the potato cake that arrived smothered in garlic underneath the confit of duck was unforgettable, particularly as I had to steal it, morsel by morsel, from my friend's plate.

Louis's customers respond to this generosity by ordering magnums of red from a newly-improved wine list. Dinner costs approximately Pounds 60 per head.

FR France, EC P5812 Eating Places TECH Standards TECH Services P5812 The Financial Times London Page XVI 833
Gardening: Spring pests are on the march - . . . but Robin Lane Fox is already marshalling his killer forces against them Publication 930313FT Processed by FT 930313 By ROBIN LANE FOX

AMONG THE marvellous haze of blossom on the first prunus trees, it would be easy to sit back during this weekend, head for the suburbs and enjoy the sudden beauty of Britain's streets. Even in the garden there is continuing confusion: hellebores are flowering with forsythias, primroses have been out for ages, and pulmonarias are behaving as if the Budget did not threaten.

Before setting out my plan of action, I must put in a word for a deep blue pulmonaria called Highdown Blue. Special forms of pulmonaria seem to multiply yearly, but this one has a vigour and depth of colour which outclasses the many others I have tried.

Highdown Blue flowers madly at a height of about nine inches, but the colour is so deep that it stands out at a distance in small groups, dotted at intervals in the front of a border which is otherwise out of season. The flowers wilt as soon as you pick them, but revive smartly if put in hot water. This plant seems quite indestructible, even after somebody squashed it by parking a car on top of it out of season.

Highdown Blue is my plant of the week, but it is certainly not my weekend problem. Here, the answer is brutally simple: get a move on. Every year, most of us attack our weeds and diseases too late. My armoury is already on red alert, a task force with four props until somebody tells me of a fifth which is even better.

In mid-March, you are most unlikely to be thinking about leaves on your roses, let alone about black spot, the disease which strips them in so many gardens from July onwards. Black spot was awful last year but, if you want to control it this year, you must act at once. Indeed, in another 10 days or so, you will be too late.

The weaponry here is a systemic fungicide which works through stems and leaves and acts as a prevention rather than a cure. It needs to be in place before the disease takes hold. The best chemical to buy is Nimrod T, sold by ICI at about Pounds 5 for enough of a dose to cope with a large rose border throughout the season.

The instructions suggest that you spray in May and never go away afterwards, but experts prefer to begin much sooner and be more relaxed later in the year. Already, young shoots on roses are wonderfully far ahead and so you can strike the first defensive blow, making a serious impression.

Nimrod T is sprayed all over the plant. You will need to follow up at least once a month but, insofar as anything combats this hideous disease, this compound is the best answer. While you are out, you also spray the hollyhocks, as Nimrod T is effective against the rust which acts like black spot on a rose and strips off their leaves in August.

Among moulds, not spots, the mild and wet winter has been very welcome. I am finding that there has been considerable carnage through the lower levels of my planting, especially among pinks and anything with silvery tendencies. Wet seasons are wonders for mildew and, once again, it pays to start very early.

On anything prone to mildew - violas and most forms of clematis - I prefer to use Benlate. After spraying clematis with this brand name, you have also protected against the dreaded wilt. You can then start to feed, a process which enthusiasts began on clematis as early as February. As an easy food with a relatively high value, I still stand by Phostrogen, which is diluted and sprayed on to the leaves.

Weapon number three is a familiar visitor to this column but familiarity does not breed weeds, especially if you spray them with Roundup. Conditions this week have been ideal for its use: calm, dry days have encouraged early growth on grass and broad-leaved weeds, which are now sufficiently voracious to take up a dose of their own death. For several days, we have been spraying Roundup on to unwanted grass, dandelions, daisies, broad-leaved weeds and that infernal little white-flowered bitter cress which is such a space-invader during March and April.

The key element in Roundup is glyphosate and, previously, gardeners were supposed to buy it under the name of Tumbleweed (which I always found to be weaker and more erratic). Professionals, meanwhile, would go to a farm chemical supplier, sign the poison book and use Roundup in bulk on large areas.

Since last year, garden centres have been selling Roundup GC for gardeners' approved use, a stronger weapon than the Tumbleweed of their past. Roundup takes up to three weeks to show its effects, but it is harmless to gardens because it kills only by contact with a leaf, not by lingering in the soil.

On my floral calendar, this month (as usual) is lined with mildly dotty 'Green Garden Tips.' In March, they suggest that we should all cover our flowerbeds with polythene in order to encourage weeds to germinate so that we can then spend April hoeing them off in bulk. I suggest that we all join the 20th century and spray the really difficult weeds, which are not just annual seeds and which 'Green Tips' somehow fails to discuss.

Roundup GC will knock out big patches of weeds and coarse grass if used now during a dry, still period of the day. As yet, it will not knock out the ever-sliming slug.

Slugs have had a dream winter during all the rain, and have already made an hors d'oeuvres out of my dicentras and sandwiches out of the emergent hostas. Fortunately, they are also very responsive to Growing Success, a newish granular killer with aluminium sulphate.

The granules can be scattered or diluted, and I prefer to scatter them like mouse-killer between plants. It is billed as a molluscicide, and I think that the slippery beasts deserve it. It is not a bait but claims to kill by 'contact action,' and to be 'used by people who care about pets, birds, hedgehogs and livestock.'

If you like pets, except slugs, you will love Growing Success. It is spreading now through garden centres but, if you cannot track it, its makers are at South Newton, Salisbury, Wiltshire; which is part of the Wessex Peat Group. I now use it against slimers before anything else: the granules can even be diluted and sprayed carefully among young seedlings, including salad plants. So far, this final prong in my armoury seems to mount an effective defence for several months at a time.

If you cannot face spraying, do try scattering, but also please take your lesson from this early season. The flowers are early, the Highdown Blues and all the primulas, but so are the pests, not to mention this summer's diseases.

GB United Kingdom, EC P018 Horticultural Specialties P287 Agricultural Chemicals CMMT Comment & Analysis P018 P287 The Financial Times London Page XVI 1203
Food and Drink: A taste of the Pyrenees - The wines of south-west France interest Edmund Penning-Rowsell Publication 930313FT Processed by FT 930313 By EDMUND PENNING-ROWSELL

NORTH of the Atlantic-side Pyrenees, inland from Biarritz and Bayonne and within the big arc of the river Adour, is one of the most unspoiled parts of France. A visit based on Pau, Aire-sur-Adour, St Jean Pied-de-Port and the charming (if faded) small spa town of Salies-de-Bearn provides access to some small wine districts that are re-establishing themselves after decades of decline following the phylloxera ravages of the last century and the subsequent economic difficulties.

Madiran and Jurancon have always managed to keep afloat and now have some enterprising private growers, but the region is dominated by co-operatives - without which few growers would have survived. All producers have a lively vente directe trade.

The red wines are dominated by the tough, tannic Tannat grape but softened by Cabernet Sauvignon and Franc, and the whites are made from a number of local varieties, notably the Gros and Petit Manseng, the grape of Jurancon, the Petit Courbu, the Arrufiac and the Baroque.

Tucked into the Pyrenees in the heart of the Basque country near the Spanish border, the 170 hectares of mountainous vineyards is claimed to be the smallest appellation controlee district in France. It is certainly among the most attractive, with St Jean-Pied-de-Port the walled local capital. Mainly red; most of the wines are made by the co-op in St Etienne de Baigory, but the leading private firm is Brana in St Jean which makes a dry white too, as well as distilling delicious Poire William from its own orchard. In Irouleguy, Ilarria, a small grower, makes excellent Tannat wine.

Bearn-Bellocq. To the north of Irouleguy and centred on Salies-de-Bearn, this small district is best known for an attractive rose, made two-thirds white from Gros Manseng and another local grape, Raffiat de Moncade, which has a slight sweetness on the palate. The main co-operative's red wine brand, unsurprisingly in this region, is named Henri de Navarre.

Tursan. Thirty miles north of Pau and based on the small town of Geaune, this is a VDQS rather than an AC district. The production is 50 per cent white and 50 per cent red, 90 per cent of this is made by the co-op. The red wine is Tannat blended with the two Cabernets, while the mainly Baroque white is a fairly strong countryish but fresh wine. Michael Guerard, proprietor of the famous spa restaurant and hotel in nearby Eugenie-les-Bains and the inventor of cuisine minceur, is a distinguished member of the co-op. He has his own 10 ha of white wine which is served in the restaurant. The British agent is Corney & Barrow, London, EC2.

Jurancon. The village is a suburb of Pau and the big co-op is in adjoining Gan, but most of its 600 hectares are to the south and west. The often spectacularly steep vineyards are on the first abrupt folds of the Pyrenees: lovely country threaded by a web of lanes. Until the 16th century Jurancon was red as well as white, but now is only white, made from the Gros Manseng for the dry and the Petit for the moelleux which is the district's delicious chief claim to fame. Sec was largely developed after the second world war, when sweet wines went out of favour. Tanners of Shrewsbury list the excellent Domaine Latrille's sec Ch Jolys '90 at Pounds 7.16 and the '89 moelleux at Pounds 7.19.

Madiran. Twenty-five miles north of Pau, this is the largest and most distinguished AC red wine producer of the area, with nearly 1,300 ha and 50 owners who bottle and market their own wine. It is the centre of Tannat country, accounting for 70 per cent of output, with the two Cabernets forming the balance. Three co-ops make most of the 550,000 cases of AC wine - although even today only 10 per cent is matured in oak. By the standards of the region there are several large estates. The biggest is Ch Montus and Ch Bouscasse with a combined 60 ha, owned by the energetic Alain Brumont, followed by the Laplace family property of Ch d'Aydie with 45 ha. The other leading vineyards include Chapel Lenclos, Dom. Berthoumieu and Lafitte-Peston. There are strong local efforts to improve quality and limit grape yields, as well as united promotional efforts to improve the image of this historically celebrated deep-coloured, bold, full-flavoured wine. A small amount of dry white is produced under the somewhat hard-to-sell name of Pacharenc du Vic Bilh, but it is welcome in the region's restaurants. In the UK Madiran comes and goes on merchants' lists, but deserves more exposure.

Saint-Mont. Much the largest district, covering a wide area in the south-west of the Gers department, to the north of Madiran and the east of Aire-sur-Adour. It only acquired VDQS status in 1981 and is dominated by a union of three co-ops in Saint-Mont, Aignan and Plaisance that sell a large proportion of the 11m bottle output under the name Playmont, with Collection Playmont reserved for the better qualities. About 60 per cent of their production is the popular Vin de Pays Cotes de Gascogne, and a quarter of all Madiran is made at Saint-Mont. The top wine is the Tannat/Cabernet Ch de Sabazon, adjoining the fine, turreted 15th century castle.

FR France, EC P2084 Wines, Brandy and Brandy Spirits TECH Products P2084 The Financial Times London Page XVI 916
Food and Drink: Enough to tempt a saint - A man of many parts inspires Kieran Cooke's choice of food Publication 930313FT Processed by FT 930313 By KIERAN COOKE

I HAVE always had a soft spot for St Francis Xavier. He had a tough enough life, wandering around the Far East long before the days of decent hotels. And death did not bring peace; far from it. His fellow Portuguese decided that Francis, being the great man he was, should be shared around.

There must be more parts of Francis spread around the world than any other saint. A hand in Macau, a leg or foot in Goa. A substantial slice of him in Lisbon. Various parts rumoured to be in Africa.

And so we move from saints to stomachs. The connection is simple. I was climbing a hill above the town of Malacca, on Malaysia's west coast, getting the juices flowing in preparation for a slap-up meal.

St Francis was buried in Malacca for a few months before being carted off and cut up. There is a statue to him on the hill (one hand is missing). Having paid my respects, the main business of the evening began.

Malacca is the home of nyonya food, one of the world's great, but least-known, cuisines. Nyonya, basically, is a delicate blending of Chinese, Malay and Indian. Lest anyone think this might be yet another example of composite cuisine, along the lines of spaghetti and chips or souvlaki and peas, it should be stressed that nyonya has been around for a considerable time and has developed an identity very much its own.

At about the time in the mid-16th century that St Francis, still in one piece, was doing his eastern rounds, Chinese immigrants were drifting south into Malay waters. They settled in what later became the Straits settlements: Penang, Malacca and Singapore.

Many inter-married with locals and, over the generations, local customs were adopted. The women - the nyonyas - wore the Malay sarong. The men - called babas - built houses mixing both Chinese and local architecture. Known collectively in Malay as Peranakan, many became wealthy members of an emerging merchant class. They developed their own Malay-based patois.

There are still plenty of Peranakan in Malacca today. Some of the architecture still survives. But the food is the most enduring feature.

To call the recipes complicated is an understatement. A traditional nyonya would take hours to prepare a meal. Like all great cooking, instinct and approximation are far more important than rules on ingredients and detailed measurements. In Malay, this loose cooking style is called agar agar - equivalent to 'a pinch of this and a splash of that.'

There are leaves and nuts from Indonesia. Spices - plenty of them - from Malaysia, India and Thailand. Dried fungus, called Cloud's Ears, from China. Yellow rice with hard-boiled eggs dyed red. Coconut and tamarind. Shrimp paste and blimbing (a small, sour fruit). All these, together with fish, chicken, beef or other dishes, are mixed to make a lip-smacking meal.

A nyonya feast might start with otak-otak. In Malay this means brains but it is, in fact, fish cake mixed with coconut and spices, cooked and served in special herbal leaves. Then you could move on to such dishes as nyonya laksa, (noodles with prawn paste featuring liberal helpings of chillies and other spices, dried fruits, lime and pineapple); beef rendang (dried beef with a sauce capable of ringing alarm bells down at the fire depot); and perhaps a nyonya-style fish-head curry.

On no account should one sidestep the pudding. The Peranakan are hearty believers in their kueh - small cakes and jellies, usually either stuffed or covered in coconut, sometimes both. For something truly local, gulam Malacca should not be missed: sago pudding cooked in brown sugar and coconut milk.

The meal is best washed down with liberal amounts of tea. A cooling beer is excellent to have afterwards, relaxing in a cane armchair under a fan. Wine, up against all those far stronger tastes, is a waste of money.

There are those who might want to rush out and try a bit of nyonya agar agar for themselves. My advice would be to save up and go to Malacca instead. Two excellent restaurants are ready and waiting. One, the Peranakan House in Cheng Lock street, is in a traditional Peranakan house. Such is the noise level in many restaurants in the East, conversation can be very limited. But here there is peace and quiet - and great food.

The other restaurant, a sister to the one in town, is in an old Chinese mansion at Klebang Besar, about five miles out on the coast.

I assume that Francis is up there, tasting the succulent fruits of heaven. But it is a pity he could not have stayed together longer - in body and soul. Even a saint might be tempted by nyonya food.

MY Malaysia, Asia P5812 Eating Places P20 Food and Kindred Products TECH Standards TECH Services P5812 P20 The Financial Times London Page XVI 846
Minding Your Own Business: Not rich, but on top of his world - Clive Fewins meets a happy band of thatchers Publication 930313FT Processed by FT 930313 By CLIVE FEWINS

THATCHING IS catching, according to mathematics graduate Martin 'Barney' Bardsley, who is confident that, barring ill health or acts of God, he will stay in the profession he switched to 16 years ago at the age of 27 for the rest of his working life.

'I have no regrets. My father, who started as a manual worker and finished life as a teacher, thought I was crazy leaving a secure job in the civil service, but I enjoy the work I do, even high up on roofs in the depths of winter.'

Money is a different matter. There may be thatchers who drive BMWs and own farms on which they grow their own materials, but Barney Bardsley is not one of them. In spite of a working week that extends to six days and often breaks into a seventh Bardsley, 43, expects to earn well under Pounds 20,000 before tax this year. The same goes for his partner David Brown, 37.

The two have shared all the profits since they merged their businesses to form Bardsley and Brown three years ago, and it has worked.

'Thatching can be a solitary life and both of us still wonder why we did not team up years before. David has always thatched - unlike me he comes from a thatching family - but he agrees that shared expertise and risk taking is a good idea, provided you trust one another.'

That view has proved particularly true in the last precarious year. Bardsley and Brown have seen their order book shrink from one to two years in advance to six months. The recession has had a lot to do with it. But there is another reason: the number of thatchers has grown, not decreased, in recent years.

'Nowadays it is possible to go on a six month course, buy a thatching franchise and set up in business immediately after, and this is what a number of people have done after collecting their redundancy money,' Bardsley said. 'The result is that there are too many thatchers chasing too little work. Some thatchers - some of them very good - face going out of business.'

Bardsley is slow to condemn the new thatching companies - he says there are some good ones - and he stresses the importance of younger people learning the craft. But he dislikes the idea of teams of thatchers, often employed by the larger companies. He feels this approach takes away much of the craft element of the work, and the interest of the individual thatcher in his work. It is this he enjoys most.

'This year it has been tough. David and I will only get near the Pounds 20,000 each we aim at if we manage to turn over Pounds 80,000, as we did in 1990, but with the bad harvest last year and consequent higher price of straw, the wet autumn, rising insurance costs and increasing competition I doubt if we shall achieve this.

'We could make more money if we dropped our standards, but this is something neither of us are prepared to do. To us job satisfaction is all-important. By now I would probably be earning far more if I had continued as a statistician at the Transport and Road Research laboratory. But I can't help being a romantic. I love thatching and the satisfaction it brings desite the harsh winter conditions and the current insecurity.

'It is hard to describe all the satisfactions, but every roof presents a separate challenge. It is hard to describe the feeling you get when driving past a well thatched roof that you have done many years later and thinking 'I did that'.'

'On big roofs the work can be repetitive. But that only lasts until you hit an interesting spot and with the two of us plus our apprentice, who is soon to qualify, we are able to switch jobs to make it interesting for all three of us.'

Thatching has traditionally been carried out by small firms, and even today there are thatching families in which the line can be traced back for many generations. However, while running a larger business with several teams has been shown to be the way to make money, the Bardsley and Brown way is not currently very profitable.

'Pricing jobs is very difficult, particularly when you know you are probably competing with someone who is likely to come in beneath you with a stupid price,' Bardsley said.

'Balancing up the jobs on which you make a good profit against those that turn out barely profitable is very difficult. We price jobs by the square, a square being 100 sq. ft, for which the price is Pounds 600. For ridges - the trickiest part of the job - we charge so much per foot, depending on the style of ridge.

'Then there are the materials. In our area, south Oxfordshire, Berkshire and north Hampshire, we nearly always use combed wheat reed. This is the straw left after harvesting long stemmed wheat.

'Generally we buy it from a dealer based in Somerset, for Pounds 485 a ton. Buying this way guarantees the quality. But even then every load of material has different characteristics. Even bundles in the same load can vary. The skilled thatcher will be able to get the best out of the varying characteristics.'

Bardsley and Brown will not guarantee the lifespan of their roofs. Bardsley has seen roofs of water reed - the most durable thatching material - last 70 years and a good wheat reed roof should last 25 years before it needs a fresh top-coat. However, nearby trees, moss or bad air circulation can greatly reduce this figure.

'Thatching still comes back to skill and experience,' Bardsley said. 'If you have a thatched property you have get to know and trust your thatcher, and a good thatcher will respect that. Some firms - I call them factory thatchers - just go in and out fast and make the job last only seven or eight years. They get away with it, and they often make a lot of money.

'I couldn't sleep at night if I worked that way. But the sad thing is that village communities are changing rapidly and virtually no thatch-owners know anything about the subject. They fall hook, line and sinker for a gleaming, newly-thatched roof, whatever the standard of workmanship. Sadly, only a skilled thatcher can immediately distinguish between the good jobs and the atrocious ones.'

Bardsley and Brown, 1, Marlston Cottages, Marlston, Hermitage, Berks RG16 9UN. Tel: 0635-201546, 255149.

Bardsley and Brown GB United Kingdom, EC P1761 Roofing, Siding, and Sheet Metal Work TECH Services COMP Company News P1761 The Financial Times London Page XV 1150
As They Say In Europe: Britain's overheated news economy - Press Review Publication 930313FT Processed by FT 930313 By JAMES MORGAN

THE SECOND anniversary of the day this column was launched on an astounded world seems a good time to reflect on the unique nature of the British media. It stems from the intense competition among 11 national dailies and the way that is heightened by the power of a well-funded nationwide broadcasting system. In the rest of Europe the news market is dominated by a couple of weekly magazines, one or two national papers and any number of regionals which operate on a shoestring and poverty-stricken broadcasters.

That the British media exercise a uniquely decisive influence on national political life has been notably demonstrated in recent days: in no other country would what has been termed the 'moral panic' over juvenile crime have provided the basis of such a concerted campaign that led to almost instant action on the part of the government.

Foreign correspondents in London quickly become attuned to the 'nine-day-wonder' nature of the news. It results from the way national dailies, and not only the tabloids, latch on to a single phenomenon to fight competitive battles. Veterans of the foreign press corps who have been scarred by numerous incomprehensible stories - Westland, salmonella in eggs - now take a sardonic view of those sudden eruptions that characterise the flow of British public life.

But their daily rhythm is rigid. The Today programme on Radio 4 is part of breakfast. They can relax until the World at One appears on the same wavelength. These set the agenda which is pursued in Question Time in Parliament and that in turn assures the headlines for the evening TV news and next day's papers.

Thus the British debate runs like this: The Guardian carries an exclusive about a secret report on the decline of the ice cream industry. The Today programme gets hold of the story and runs a feature on the rise of American ice cream in Britain. The original report is published in full later that morning and the World at One interviews the Minister for Ice Cream. In parliament during Prime Minister's questions, John Major rejects demands for action. Next day the Daily Express leads on the headline, 'Ice cream: Major acts.'

Look what happened to the last set of unemployment figures. Endless items up to 'U-day' itself predicted that unemployment would rise above 3m. Then came the figures. They showed that it stood at 2,995,100 seasonally adjusted. So the media unanimously, and contrary to normal practice, seized on the unadjusted figures which put unemployment at above 3m. How wise the Germans are never to say when their official statistics are to appear.

One may wonder if the institutionalised overheating of the policy debate in Britain damages the policy-making process. City economists, who should be safely locked up feeding incorrect forecasts to their employers, become famous, quoted and interviewed on all aspects of government policy. When the pound was on its way out of the ERM last September, they appeared across the media to sing the praises of devaluation. Now guess whether their employers made or lost money on the sudden collapse of sterling.

The situation in France or Germany is quite different. For one thing, both suffer a dreadful shortage of economists. There is some discussion of public policy issues on the broadcast media but the usual fare of morning current affairs programmes is provided by the clients of resourceful public relations agencies. 'And now we take a look at the forthcoming masterpiece of Jean-Luc Cineaste.'

It was inevitable that there was an intense debate in Britain on the Maastricht Treaty while public opinion in most of the rest of Europe supinely accepted the word of parti pris Eurocrats. But have the benefits of this public debate outweighed the damage? Is the absurd chain of events at Westminster not the result of an over-excited controversy that is constantly fanned into life by highly-motivated and gifted newsmongers?

And they in turn are assisted by an astonishing number of well-organised pressure groups, charities and of course MP's devoted to ensuring the public benefits from their unique insights. All these have abundant access to the nation's news outlets to which decision-makers feel compelled to pay attention. Any time anybody wants an opinion in Britain there is always the Royal Society for the Protection of This and That, Credit Russe Bigbang & Boom, the Sweatshop Association, Help the Rich, Women Against Men, the National Truss and Hernia Foundation and Lord knows who ready to provide it. And everybody who is anybody from Land's End to John O'Groats has to listen.

It could all get worse. There may yet be a Freedom of Information Act.

James Morgan is economics correspondent of the BBC World Service.

GB United Kingdom, EC P2711 Newspapers TECH Standards TECH Services P2711 The Financial Times London Page XV 820
Sport: War of the puppets - The new F1 season starts tomorrow / John Griffiths looks at the backstage battle over technology Publication 930313FT Processed by FT 930313 By JOHN GRIFFITHS

INDIANAPOLIS-bound Nigel Mansell was closer to the mark than perhaps even he knew when, with his waspish parting shot at his detested rival Alain Prost, he said that the Williams-Renault in which Prost will start the South African grand prix tomorrow was so advanced it could be driven by 'a puppet.'

Indeed, grand prix technology is hurtling forward so fast that, left unchecked, a puppet might not be necessary. Max Mosley, the president of the Federation Internationale du Sport Automobile (Fisa), the world governing body of motor sport, says: 'We are talking about something which technically could be only three or four years away.'

The cars, digital 'maps' of each circuit stored in their computer memories and with an occasional adjustment from the pits via telemetry, could be capable of racing on their own with steering, suspension and brakes responding by computer to electronic 'vision.' At the moment, they lack only the vision system - and even that technology exists.

Human interest? Slap a helmet and overalls on anyone prepared to go along for the ride.

He or she would lack the skills of world champions Mansell, Prost or Ayrton Senna - but would not need them. Nor, from the perspective of sponsors, increasingly uneasy at the spiralling costs of grand prix racing, would they warrant the Dollars 10m (Pounds 7m) which the top drivers received in the 1992 season.

Of all the team changes, personal rivalries, cash crises and other dramas which have combined to make the 1993 season one of the most important in grand prix history, the technology issue stands out. The grand prix world, familiar with the problems of driving round a circuit, has found itself at a crossroads.

Along one route lies Indycar racing - equivalent to grand prix in north America - with which Mansell is grappling. Here, electronic control systems are banned, gearboxes are manual and engines have to be shared among teams. The emphasis is on equalising machinery to maximise competition between drivers.

Down the other lies unchecked technology, ever-climbing expense and the diminution of the role of the driver.

The recession has cut sponsorship budgets - one well-informed source suggests a fall of 50 per cent this season - just as teams must find the cash to keep up with the rapid technological developments. Manufacturers, sponsors, administrators, engineers and drivers are asking, as never before, whether grand prix should be sport or science.

Mosley, a barrister and a former racing driver, is staking his presidency on curbing technology. On that basis, events in Paris on Thursday will be of more fundamental importance than whether young Damon Hill beats veteran team-mate Prost in the Williams-Renault at Kyalami tomorrow; or whether the late-signing Ayrton Senna will upset the applecart with a suddenly more competitive McLaren-Cosworth.

On Thursday, the FISA world council is expected to endorse the proposals of its Formula One commission to ban, from the 1994 season, all electronic aids which detract from the role of the driver. That includes the computer-controlled 'active' suspension systems developed by leading teams at a cost of millions; traction control, which stops skids automatically; and possibly even the semi-automatic gearboxes which are one of the dwindling areas of grand prix technology of likely relevance to future road cars.

Some leading teams have grudgingly accepted tentative costing-cutting as well as those measures aimed at helping less well-heeled teams, so increasing the closeness of the racing this season. Even so, Mosley could face a revolt.

There have been muttered threats of legal action against the technology ban, on the ground that it has not won the approval of all teams. Mosley says he will stick to his guns.

The prospect of a technology ban is viewed differently in F1's various camps. For leading technology-driven constructors such as Williams, McLaren and Benetton, yielding expensively-won advantage is a bitter pill to swallow.

The attitude of the big manufacturers who back grand prix is conditioned by performance. Renault, Ford and Mercedes (powering the new Sauber team) oppose the ban. Ferrari, struggling woefully to get to grips with the technology, would be quietly grateful.

Drivers, Prost prominent among them, are mostly in favour for it is their skills which are devalued by technology.

Sponsors with no entrenched motor industry interests other than the simple desire to stay exposed to a 100m global grand prix television audience, maintain a discreet silence but welcome quietly the prospect of closer racing at less cost.

Most important of all, the ban would mean that Indy and grand prix cars could move relatively quickly towards a common specification.

Already, planning permission for been given for one Indy-style oval on a disused British Steel site at Corby in Northamptonshire while Silverstone's owner, the British Racing Drivers' Club, has completed detailed planning for a second. A third is being prepared by Donington Park's owner, Tom Wheatcroft.

US motor racing officials, who show distaste for the intense politics and perceived gravy train of Formula One, pour cold water on the idea of a F1-Indy 'marriage.' But Mansell's presence on this year's Indy circuit, and sponsor pressure, could see the shotgun brought out.

A technology ban would be of almost wholly unalloyed benefit. Grand prix has had its moments, Mansell's gloriously futile chase of Ayrton Senna at Monaco last year among them. But the very fact that grand prix overtaking manoeuvres are memorable as much for their rarity as their spectacle underlines Mosley's concern about the grand prix processional.

Last month, Dale Earnhardt took a hard-earned victory in one of the most famous US races, the Daytona 500. During the contest, the lead changed 38 times.

That is motor racing.

XA World P7948 Racing, Including Track Operation PEOP Personnel News CMMT Comment & Analysis TECH Technology P7948 The Financial Times London Page XIV 992
Sport: After Mansell - The new F1 season starts tomorrow / Martin Jacques asks which driver will win Publication 930313FT Processed by FT 930313 By MARTIN JACQUES

THE first grand prix of the Formula One season at Kyalami, South Africa, tomorrow will provide some light relief from the politics that have dominated the closed season. As the racing starts, F1 is afflicted by doubt and uncertainty.

During the 1980s, F1 was in expansive mood. Attendances at races mushroomed, television audiences grew apace, sponsorship brought unprecedented resources to the teams, and the big car-makers entered the fray on a greater scale than ever before. F1 enjoyed its own version of the boom years. Last season, however, the recession began to bite. Three teams withdrew, and rumours in the paddock suggested that all but the top ones were feeling the pinch.

The downturn coincided with a more existential crisis. The season proved to be one of the most processional ever. Nigel Mansell in his Williams-Renault dominated from beginning to end. He won more grands prix in the course of the season than anyone had ever achieved previously.

Crowds dropped and, most seriously of all, so did television audiences. The powers-that-be began to worry that the television companies might lower F1's credit rating, with potentially dire consequences for the financial health of the sport.

The secret of Mansell's domination was the remarkable technical advantage achieved by Patrick Head and Adrian Newey, the Williams designers, over their rivals. But this proved expensive and F1 was threatened by a pincer movement: poor entertainment value and escalating costs.

To compound matters, negotiations between Williams and Mansell over a new contract broke down and F1 finds itself facing the new season without the world champion and, by common consent, the most exciting driver.

Worse, Mansell signed for one of the top teams in the US Indycar series, a long-standing rival of F1 and the main reason why it has never become a serious force in north America. Mansell's charisma saw European television companies, including Britain's ITV, queuing to buy the rights to broadcast the Indycar events.

But as the 1993 season prepares for the lights to turn green, there are some encouraging signs on the track. The fear has been that there would be a repeat of last year, with Williams - and Alain Prost, in particular - disappearing into the blue yonder.

Pre-season predictions are, however, always notoriously difficult and unreliable. They are based on close-season testing involving many different circuits and conditions and, often, wilful attempts by one team or another to conceal their true performance.

Last season, the majority of pundits failed to predict Mansell's extraordinary domination: instead, most of them backed Ayrton Senna to become world champion again. This season, needless to say, they have gone overwhelmingly for Prost in the Williams.

In recent testing, though, the Benetton - fitted with all the latest technology and driven by Michael Schumacher, the talented young German - has gone well. So, too, has the new McLaren which, in the hands of Senna, managed to break the lap record at Silverstone last week.

The McLaren's performance persuaded the three-time world champion to race in South Africa: previously, he had left his intentions for the new season suitably vague, even considering giving it a miss altogether should the new McLaren not be competitive.

Meanwhile, many eyes will be cast westward as Mansell wends his round the US (and, occasionally, Canada and Australia) in his Indycar. The F1 authorities will no doubt be monitoring his progress with more than a little nervousness: motor racing fans, however, are promised a double whammy. For most of the season, F1 and Indycar will be on UK television screens on alternate Sundays.

XA World P7948 Racing, Including Track Operation PEOP Personnel News CMMT Comment & Analysis P7948 The Financial Times London Page XIV 640
Sport: Off-piste with the fat boys - Skiing / Arnold Wilson tries helicopter skiing in the deserted wilderness of Canada Publication 930313FT Processed by FT 930313 By ARNOLD WILSON

IT COULD almost be a Vietnam war film clip with snow. Every morning at 8.30, five helicopters with headlights blazing come clattering into Blue River. Without fail the adrenalin starts pumping.

Helicopter skiing is addictive and these days anyone with sufficient money can do it. Forget virtuoso technique. Forget leaping off cliffs. Thanks to a newoff-piste ski, the Atomic Powder Plus - nicknamed 'fat boys' or 'fat sticks' - money, or lack of it, is the only barrier to those who dream of heli-skiing.

Mike Weigele certainly has a lot of wealthy customers at his Blue River resort in the mountain wilderness of British Columbia. One pony-tailed client, who skis there eight weeks a year and takes lobster up to the lodge for his private party, is worth Dollars 50m (Pounds 35.2m).

The Powder Plus skis, developed by Atomic, are being copied by other manufacturers. The wide-bodied ski is revolutionising off-piste skiing, in all types of conditions. The big heli-skiing companies in Canada - Canadian Mountain Holidays and Weigele - have switched to them.

It is a little like having a mono-ski or even a water-ski on each foot. In a sense, the skis enable you to cheat. They can make skiing off-piste so easy that any reasonable intermediate can do it.

All week, while Blue River remained lost in fog, we rose above the clouds in our Bell 212 to enjoy a feast of skiing with our new rental Powder Plus skis.

Safety is paramount in helicopter skiing. The first evening and following morning were taken up with safety drill. 'There are three Number One rules of heli-skiing,' says our amiable guide, Bob Sayer.

'The most important is: 'don't break the helicopter'.' Guests have been known to accidentally snap off the long proboscis that provides the helicopter with radio communications with the guide and other pilots.

Next comes: 'Never ski past the guide.' Crevasses, avalanche slopes or both could be lurking ahead.

The third rule is more positive: 'Don't forget we are here to have fun. We do not need to move fast around the helicopter. Just be careful and we'll all stay happy and have fun.'

There are other rules. 'Don't ski too close together,' says Sayer. 'We're almost alone in more than 4,000 square miles of mountain wilderness, so what's the point of skiing into each other?

'Keep an eye on the helicopter at all times when it is coming in to land or taking off. And when you jump out of the helicopter, don't bury your head in the snow.'

Soon we were skiing our first run, Cedar, an easy warm-up. *something in here (HP) *

Then we skied a longer, more difficult run called Mousetrap before turning our attention to Paradise, the first with real glacier terrain. Our guide prefaced every run with instructions varying from: 'Ski in my tracks' if there was a danger of crevasses, to 'you can ski five turns apart, either side of my tracks' if the coast was clear.

The best snow conditions of the week were in feather-light surface hoar-frost - formed when moisture evaporates from the snow and freezes - on a run off Augerhorn. The skis performed brilliantly, flattering our turns and enabling us to leave almost effortless 'S' tracks in gunbarrel gullies, couloirs and all kinds of snowfields as we swooped down one roller-coaster run after another.

The 'fat boys' were pioneered by Georg Ehrschwender, a former train driver from Salzburg, who was with us that week. He is a brilliant skier, and his inventions include goggles with a chimney arrangement which allows hot air to rise and thus prevents them steaming up; powder poles with bright orange trumpet-shaped baskets; a metallic hat that snow simply slides off; and a silver-foil loo for women caught short while heli-skiing - which he thoughtfully set up for us during lunch on a frozen lake at the bottom of a run called, appropriately, Nancy's Relief.

When Georg discovered that his fibre-glass prototypes worked, he burst into tears - but he cried only half-way to the bank. So far, he says, the skis have not made him rich.

As the week progressed, we switched between the Monashees and the more rugged and adventurous Cariboo slopes, depending on snow conditions and visibility.

Our pilot, Greg Kennedy, was always there at the bottom, waiting to clatter off to yet another run. An Everest a day - almost 30,000 vertical feet - is not uncommon, especially on 'fat boys.'

Weigele operates helicopters along a 4,000 square mile area of the Monashee and Cariboo Mountains from his base at Blue River Lodge, a remote spot on the shores of Lake Eleanor 370 miles from Vancouver. CMH, Weigele's rivals, also operates in the area, but they are such big ranges that the nearest the two operations get to each other is 20 miles.

'There's a ton of skiing out here,' says Sayer, over an excellent dinner in the cosy chalet-style lodge. 'We have 300 named runs and another thousand we haven't named yet.' Arnold Wilson was a guest at Mike Weigele Helicopter Skiing Holidays (0101-403-762-5548), marketed in Britain through Ski Scott Dunn (081-767-0202) and Fresh Tracks (081-335-3003). He travelled to Kamloops, British Columbia, with Air Canada, 7-8 Conduit St, London W1R 9TG (081-759 2636).

The two-and-a-half hour journey to Blue River was by a Mike Weigele Greyhound bus. A seven-day package, excluding flights from Britain, varies from CDollars 2,900 (Pounds 1,630) to CDollars 4,670 (Pounds 2,623) for double occupancy accommodation in individual spruce-log chalets, some with self-catering facilities.

The package includes 100,000 vertical feet of helicopter lift, with 80,000 vertical feet guaranteed. Extra skiing is charged at CDollars 14 per 1,000 vertical feet. Three-day packages start at CDollars 1,570 and five days at CDollars 2,370.

CA Canada P7999 Amusement and Recreation, NEC CMMT Comment & Analysis P7999 The Financial Times London Page XIV 1006
Motoring: On the road with Little and Large - Stuart Marshall tests a stately Mercedes and the cheeky Subaru Vivio Publication 930313FT Processed by FT 930313 By STUART MARSHALL

IF SIR Edwin Landseer had seen them together, he would have dashed off another version of Dignity and Impudence. As it was, my neighbour said I really had gone from the sublime to the ridiculous. He was looking at the two cars standing side by side in my drive; a massive Mercedes-Benz 500SE in which I had just made a 1,200-mile (1,930 km) return trip to Geneva, and a tiny Subaru Vivio.

Sublime is a good way to describe the kind of motoring the 500SE offers. Its five-litre, 308-horsepower V8 had propelled its two tonnes on autoroutes, N and D roads, over the Col de la Givrine and in Geneva's traffic without ever flexing its muscles or raising its voice.

To my surprise, it returned 20.63 mpg (13.69 l/100km) on the autoroutes and 19.61 mpg (14.41 l/100 km) elsewhere, making 20.12 mpg (14.04 l/100km) overall. For so majestic a car, driven fairly briskly, I thought this not at all bad: a 3.2-litre 300SE did little better (21.48 mpg/13.15 l/100 km) on an identical trip last year. But French unleaded petrol is FFr5.52 (around 71p) a litre, or Pounds 3.23 a gallon, making the fuel cost 16p a mile (nearly 10p a kilometre).

You can see why large-engined cars are few and far between in France. And why, with gazole two-thirds the price of unleaded petrol, well over 40 per cent of all newly-registered French cars are diesels. Mercedes-Benz S-Class salesmen must be like Rolls-Royce dealers, telling prospective customers who enquire about miles a gallon that, if they have to ask that kind of question, they cannot afford the car.

In town - even more so in a multi-storey car park - you are aware of the S-Class's bulk; but on an autoroute, it reigns supreme. High gearing (nearly 30 mph/48kmh per 1,000 rpm in top), double-glazed side windows and minimal tyre rumble make the interior quieter than club class in a 747.

From standstill, it takes off with similar vigour to a Bentley Turbo R - but such foot-hard-down antics are discouraged the instant the driver sees the fuel consumption indicator drop into low single figures.

It rides superbly and handles with an agility that belies its size. The air-conditioned interior provides four people with lounging space, and a fifth is not cramped. The doors and the lid of the vast boot are closed silently by electric motors. All cars should have rear-view mirrors like the 500SE's. A single knob power-adjusts the interior and exterior mirrors, folds the outside ones flat (ideal when parking on a ferry or in a narrow street) and restores them to their original position.

The Pounds 61,800 asked for a 500SE is a lot of money but a 500SE is, undeniably, a lot of motor car. But expensive, luxury-class saloons will not be so important to Mercedes-Benz in future; it has announced plans to make high-quality cars for all market segments.

People who reckon to travel first-class everywhere will still want large - and large-engined - luxury cars. While they do, the S-Class has a secure future. No volume-produced rival can match it at present for performance and prestige. But no maker is keeping a closer watch on the formidably good Toyota Lexus 450 than Mercedes-Benz.

From the sublime to the Subaru. Stepping out of the 500SE and into the Vivio was a bit like dismounting from the heaviest of hunters and throwing a leg over a Shetland pony.

The Pounds 6,999 Vivio is tiny: shorter than a Rover Metro, not much longer than a Mini, narrower and higher than either of them. This makes it ultra-handy in traffic and parkable almost anywhere; yet, four people can fit inside without their heads touching the roof. Tailgate (and fuel filler) open from inside and the boot holds a supermarket trolley full of groceries.

All controls, steering included, are very light. The 658 cc, four-cylinder engine accelerates up to high revolutions with an electric motor's smoothness but pulls so well that fourth, even fifth, gears are usable in town.

Although the little wheels tend to magnify potholes and drain covers, the ride is not in the least teeth-jarring. And with a top speed of 83 mph (134 kph), the Vivio driver need not fear motorway speed cameras.

Although I would not choose one for a long journey, it is more than just a town car-cum-shopping basket. Let the eager little engine spin fast and the Vivio holds its own well enough not to be an embarrassment on the open road. Drive it gently and the fuel consumption will be around 50 mpg (5.65 l/100 km).

The only real snow I have seen outside mountain areas this winter was on the A26 autoroute between Calais and the A1 interchange last week. So, I cannot speak from personal experience of the Vivio's unique in-class feature of four-wheel drive, selectable at the touch of a button in the gear lever knob. But I know that its similarly-equipped, slightly bigger brother, the Subaru Justy, copes most competently with snowy roads and muddy car parks alike.

Many commuting businessmen burden themselves with large, load-carrying and fuel-thirsty on/off-road 4 x 4s because, they say, they want to be sure of getting to a country station in winter. They would be better off providing the nanny with a Vivio instead of a Metro as a runabout. Then, they could have a nice big estate as the company car - and commandeer the Vivio when they need four- wheel drive on snowy mornings.

GB United Kingdom, EC P3711 Motor Vehicles and Car Bodies TECH Products P3711 The Financial Times London Page XIV 965
Records: Breakaway rock Publication 930313FT Processed by FT 930313 By ANDREW CLEMENTS

ROD Stewart may be making plans to tour with The Faces again, and minds are already boggling at the thought of John Cale and Lou Reed contemplating a reformed Velvet Underground, yet the most interesting albums of the last month have come from a newer generation of performers only too pleased to be breaking away from the bands that first brought them fame. The urge to shake off collective responsibilities and strike out on a solo career seems stronger than ever, the shelf life of a successful band correspondingly shorter.

Frank Black's eponymous debut album arrived at the same time as a press release confirming the break-up of The Pixies, the band in which Black (operating under the guise of his previous incarnation, Black Francis) was the moving, vaguely sinister spirit. What ever the reasons for the band's demise, it does not appear to have been a dispute over direction, for though Black has recruited a new band (including one half of They Might Be Giants and a former member of Captain Beefheart) the musical mix on Frank Black (4AD CAD3004) is recognisably of a piece with the sounds and sources that made The Pixies' four albums so distinctive and engaging.

The original concept was apparently to compile a collection of cover versions, but only the Beach Boys homage has survived. All the rest is new material from Black, in which he is able to give full rein to his pet obsessions, especially extra-terrestrials and UFOs, as well as throwing in a tribute to the Ramones and a brief nod towards John Denver. Just as often though the verbal meaning is hard to divine, and then the songs fall back on their exuberance to survive; the energy and the invention are unmistakable, naggingly insistent.

Throwing Muses was the creation of Kristin Hersh and her half sister Tanya Donnelly, but with Hersh's retreat into motherhood the band that threatened to corner the market in opaque lyrics seems to gone terminally dormant. Left to her own devices Donnelly has assembled her own band, named it Belly, and after a couple of exploratory EPs last year now produced a first album, Star (4AD CAD3002), which turns out to be a remarkably assured and insidiously powerful collection.

Within musical packages that move easily between bright, clean pop and acoustic-based country and take in all points between, Donnelly secretes lyrics of undisguised bleakness, deploying her little-girl-lost voice with unexpected resource and subtlety.

No such problems with Balinese Dancer (China WOLCD 1031), the second solo album from Chuck Prophet, guitarist and a very good one too with the West Coast band Green on Red. While there is no hint yet of that refreshingly straightforward band going their separate ways, Prophet is clearly a confident and accomplished solo performer in a style that is basically country rock, even if the odd blues inflection is mixed in here and there. His singing voice may be closest to Tom Petty, and he can manage a passable Dylan whine, but the material stands up well in its own right, and is always graced by Prophet's own elegant guitar playing.

For some of course, there's no need to lookback or hanker after a return to former glories. There must now be a whole new generation of Sting fans who have no idea who Police were or how their hero first achieved his present eminence. And just as Sting's very genuine talent threatened to disappear under the self-inflicted weight allusion and pretension he has produced a new album, Ten Summoner's Tales (A & M 540 075-2), which represents a decisive return to his top form.

The references to Chaucer and to his own surname (Sumner) in the title can be dismissed as untroubling conceits; the 12 songs here (ten 'tales', together with prologue and epilogue) explore familiar Sting territory, even though South America seems off limits this time. But there is a new directness and simplicity in the songwriting and the arrangements; besides which he is, whatever anyone says, a remarkably fine singer.

GB United Kingdom, EC P7929 Entertainers and Entertainment Groups TECH Products P7929 The Financial Times London Page XIII 700
Making a meal of screen violence: Dr Lecter feels guilty. Dominic Lawson says he need not worry, although his taste in wine is poor Publication 930313FT Processed by FT 930313 By DOMINIC LAWSON

THIS year Anthony Hopkins was knighted perhaps for services to screen violence. In the Silence of the Lambs, Sir Anthony, as he then wasn't, played the part of a cannibal, Doctor Hannibal Lecter, whose favourite meal was human liver, washed down with Chianti. For this portrayal of gastronomic perversion - Chianti, for heaven's sake, not even a decent claret - Hopkins was also awarded an Oscar.

Now the great Welsh actor says that it might have been a terrible mistake to have taken part in such a violent film. And the man who approved making Dr Hannibal into Sir Hannibal, John Major, has told the Conservative Party faithful in Harrogate that something must be done about 'the relentless diet of violence in the media'.

Major's argument, assuming that as usual, he is following the conventional wisdom, seems to be that the impressionable imitate the violence they see on their screens. Being an impressionable fellow myself, I thought it safer not to go to see The Silence of The Lambs. Otherwise I might even now be imitating the main character, turning into a transvestite serial killer and stuffing the larvae of rare moths down the throats of my victims.

Perhaps you too might be impressionable. Have you murdered anyone recently? You must have seen hundreds of murders on television or in the cinema. Surely some of it must have rubbed off on you. Or are you still the same law abiding citizen with no sudden craving to eat human flesh washed down with cheap Italian wine?

Television has become a convenient alibi, and not just for politicians seeking to shift the blame for rising crime on to other shoulders.

The idea of television as responsible agent is also a convenient alibi for those who most need it - criminals and their lawyers. You know the sort of thing: 'My Lord, my client was a perfectly harmless football hooligan with only a few minor offences - and then he saw Denis Potter's Lipstick on Your Collar. After that he promptly and understandably raped his wife. I ask for the Court's clemency.'

The point is that people who commit violent crime are not like you and me. Their violence comes from within themselves, not down a television tube. In fact, the more time such people spend watching television the safer the rest of us are.

What is undeniable is that violence on television can be distressing to watch, particularly for little children. Alan Yentob, the new controller of BBC 1, said, in response to Major, that it was up to parents to protect their children from violent television.

Parents should not need to defend their children from the BBC. Auntie should not be like an unpredictable dog, a sort of electronic Rotweiler which needs to be locked up and kept away from children and old ladies.

But Yentob is partly right: as adults we have a choice of what to watch and what not to watch. If we grown-ups do not like violence on television, we should vote with our fingers and switch off.

The new crusaders against what is usually termed 'gratuitous violence' argue that we have lost the will to switch off, because we no longer have the sensitivity to be shocked. They say we have become 'desensitised' to violence, so that we can sit calmly grazing at our TV dinners while watching scenes of horrific bloodshed.

This may be true, but if so, it is the images of bloodshed to which we have become accustomed, not the reality. In common with many viewers of television news I have become emotionally immune to scenes of harrowing brutality. But recently when I witnessed someone being run over by a car, I was shaken and shocked. That is why crowds immediately gather at such scenes. They know that this is the real thing, not 'gratuitous' at all, and something quite different in kind from the edited dramas of the television screen.

Sir Anthony says that he will not do a sequel to Silence of the Lambs, so disturbed is he by the effects of film violence. It is a fine stand. But Sir Anthony should go ahead and keep his agent happy. The world will not be a more dangerous place if Dr Lecter reappears in our cinemas. And who knows, Sir Anthony might win another Oscar, and this time be rewarded with a peerage.

Rough Stuff, Page XI

Dominic Lawson is editor of The Spectator.

GB United Kingdom, EC P9229 Public Order and Safety, NEC P7812 Motion Picture & Video Tape Production CMMT Comment & Analysis P9229 P7812 The Financial Times London Page XXIV 804
Private View: Nature ramble with Marx's gardener Publication 930313FT Processed by FT 930313 By CHRISTIAN TYLER

THE GHOST of Karl Marx will be hovering over its tombstone in Highgate Cemetery tonight, the eve of the great philosopher's death 110 years ago.

It was a quirk of history that the bones of the father of world communism should come to rest not in the Kremlin wall but in a north London burial ground laid out by financial speculators and managed by a group of upper-middle-class English volunteer worthies.

Marx is buried in the later, east wing of the famous cemetery. Among his comrades are Chubb the locksmith, Lobb the bootmaker, Foyle the bookseller, Smith of Hovis, Cruft of the dog show and Hutch the cabaret star. More congruously, there are Dr Dadoo, first chairman of the African National Congress, and Claudia Jones, a black freedom fighter.

But Marx is old hat now, at least to the Friends of Highgate Cemetery who bought the place 17 years ago: they measure his value by the pounds they earn selling souvenir miniatures of the famous, bearded head. So it was not to Marx's grave but through the heavy iron gates that protect the mysterious and beautiful west wing - John Betjeman called it 'a Victorian Valhalla' - that the chairman of the Friends and guardian of the tombstones, Jean Pateman, conducted me last week.

Pateman is not the type to shiver at a memento mori nor be cowed by the presence of the dead. She is one of those brisk, bossy women of ringing accent and good family (the Ouseley-Smiths of Cheshire) who in England love to sit on committees, raise money and run things.

She talked about the cemetery rather as if showing off her own, rather overgrown, country-house garden ('don't walk on the vegetation if you don't mind]') and with that English kind of pride which is full of superlatives but from which all sentiment has been carefully scrubbed.

'You know,' she said, stopping to point out a stone angel weeping in the undergrowth 'this is a team effort. I'm just the girl who's bullied and stirred things along and promoted and driven and survived and . . . It's a very big business now,' she added triumphantly.

Pateman is a mild name-dropper - it is part of her job, after all - and it was occasionally hard to tell whether the names she dropped were of the living or the dead. She discussed her famous supporters and tenants in the same tone, as if discussing invitations to a dinner party. ('Christopher Fry, our nicest, gentlest VIP, lovely man, absolutely charming . . . ').

How, I wondered, would Michael Faraday, the Sandemanian scientist, get on with Joseph Frost, the Muggletonian, although both are buried in Dissenters' Corner? William Jeakes, inventor of the hospital drying machine, would certainly have something in common with that Dr Lee who decreed that hospital windows could be opened. The Rossettis and Galsworthys would hit it off. Tom Sayers, the prizefighter, could chat to George Wombwell, the menagerie owner, about his pet dog Lion and Wombwell's pet lion Nero. I should want to ask Sir James Tyler, of course. But do we dare put William Lillywhite, the round-arm bowler, next to Radclyffe Hall, the lesbian author - especially if we have to invite her friend Mabel Veronica Batten as well?

Burial appears to be coming back into vogue. I asked Pateman why.

'I believe there is an extraordinary psychological need that many people now feel to have something less austere and clinical and more in keeping with a proper ritual,' she said.

Why do people choose to be buried rather than cremated?

She sniffed. 'Why do some people enjoy pancakes and others prefer fresh fruit?'

Highgate contains 51,800 graves and the bones or ashes of 166,800 people. The latest arrival, she told me, was 'a darling old boy of 94 who, for the last 17 years or so, always kissed my hand whenever we met: he was a colonel in the Polish air force.'

The cemetery's popularity has soared, from 12 burials a year when the Friends took over to more than 80 a year. Space will have run out by the millennium and prices - Pounds 540 for cremated remains, or 'cremains,' Pounds 810 for a child's burial and between Pounds 2,200 and Pounds 6,850 for adults, according to the size of plot - will rise accordingly. You may not book in advance.

The Friends describe Highgate as a nature reserve in a burial ground, and it was plain that the living receive as much as attention as the dead. As we climbed one of the paths, my guide listed the ground-covering plants: wild garlic and Russian comfrey, periwinkle, lady's-mantle, wood-spurge and dusky cranesbill, orange hawkweed, campion, Jacob's ladder and lung-wort.

Above us, a sycamore forest which had given way to ash woodland was being cut to let in holly, yew and hawthorn, with plantings of lime, alder, hornbeam, willow and aspen, and oak to attract the insects: 'About 286 different insects inhabit an oak, you know.'

It is a place, she said, for 'owl prowls and fungal forays' where arachnologists, herpetologists and lepidopterists flourish. There are foxes in the underbrush but the screaming peacocks disappeared some while ago - strangled, probably, by the neighbours.

Its recent human visitors have included art students who came to draw the monuments, mausoleums and catacombs, a party of funeral directors from Belgium, restorers on their way to advise in Poland, landscape architects from Italy, Norway and Finland, social historians and film researchers. The Friends are squeamish about letting Highgate be used for horror films, but many TV documentaries have exploited its photogenic atmosphere.

Conservation is a controversial business. Here, the policy is to patch up rather than restore, Pateman explained as we circled the neo-Egyptian necropolis that crowns the cemetery. It is the 'ruin-as-found' technique. She began to elaborate, then broke off. 'That's Beatrix Potter's publisher through there, by the way.'

When I mentioned the ivy draped in Gothic profusion over the monuments, it seemed to touch a raw nerve. 'I'm not going to be drawn into the ivy debate,' she said, firmly. 'There are three factors: it is a unifying factor, it acts as a concealing agency, and it is a habitat for spiders. It harbours the birds, of course . . .'

And it looks nice?

'Exactly. And it is only damaging to the softer stones.' Apart from anything else, it would take armies of people to remove it all and it would look perfectly horrifying.'

She indicated another grieving angel, gleaming white. 'The grave-owners came and gave it a jolly good cleaning. Now, we can't say 'please don't clean' though we can say 'don't bring any acid because it'll spoil the plants nearby . . . But it does look a little incongruous. So does this . . .' She pointed to an obelisk on the pathway, then checked herself and praised the generosity of the shipping company P&O which had restored the grave of Broddie McGhie Wilcox, an early partner of the line.

Earlier, the chairman of the Friends had said she was too busy looking after the living - there are 75,000 human visitors a year - to feel the presence of the dead. 'But I'll tell you what I do feel. I feel afflicted by a great sense of awe that wherever we move there is great and profound distinction - the number of people who have made enormous strides in society.

'I mean, tucked away in there' (she pointed again) 'is the first person ever to use an anaesthetic in this country - he was a dentist - several days before the great operation at University College Hospital.'

Did he demonstrate on himself and pass away in the process? I asked, facetiously. Pateman's eyebrows rose until they hit the band of her home-made toque. She gave me an old-fashioned look: 'No comment'.

How would you like to end up, I asked her.

She laughed: 'I should like to become a tree, I think.'

Are you going to be buried?

'No, definitely not. Quite definitely not.'

Why not?

'Because - and this is highly personal - I really feel that cremation is more hygienic and more appropriate and requires less space.'

Isn't that odd after you've spent so many years and so much energy tending a graveyard?

'That's quite different,' she said. 'I was tipped in here because I happened to be serving on the environment committee of the Highgate Society. I came here very reluctantly.'

Eventually, she admitted that she would not object if her 'cremains' were deposited at Highgate.

What inscription would you have on your tombstone?

''The old girl worked here', or something like that, I should think.' She laughed.

Myself, I guess they will do better for her than that.

GB United Kingdom, EC P6553 Cemetery Subdividers and Developers RES Facilities P6553 The Financial Times London Page XXIV 1498
Hawks & Handsaws: Out of the Getty, into the ghetto Publication 930313FT Processed by FT 930313 By MICHAEL THOMPSON-NOEL

I AM glad that Turner's Van Tromp Going About to Please His Masters is on its way from London to the Getty Museum in Malibu at a price of Pounds 11m. Britain is up to its ears in Turners. We should chuck a few more out. Other stuff, too. We can hardly move in London for paintings, pots and rocks

Part of the reason for my equanimity is my admiration for the Getty Museum. I was never a snob about it. I liked it at first sight. It opened in 1974. Joan Didion called it 'rather giddily splendid . . . a commemoration of high culture so immediately productive of crowds and jammed traffic that it can . . . be approached by appointment only.'

It also seemed, she said, to stir up social discomforts at levels not easily plumbed. The museum was thought to be vulgar. In 1986, at a lunch at the Getty Trust in Santa Monica, I sat next to one of the Getty scholars, a short-skirted professor of memorable loveliness who was happy to gossip. 'It was kind of weird when it first opened,' she said. 'Here you were in this supposedly Roman villa gazing into room after room of gorgeous French furniture. It seemed the tackiest idea, but not any more. Now it's OK, even studied and admired.'

I tried to visit the museum the other morning, but it was closed because of a storm. Instead, I called at the Getty Trust to pick up its latest report, which covers the period to June 1990. It shows how the Getty Trust, which is run by clever people, is enlarging the kitty left by John Paul Getty.

This has set me thinking about the habits of the rich. It does not surprise me that rich people collect art. It is often a form of aggression: a parading of competitive wealth and taste. Conspicuous consumption.

What does surprise, now that I think about it, is the way in which the rich, at death, entomb their pots and daubs in yet more museums instead of selling them so as to endow charitable trusts whose specified mission was to help combat the wretchedness in which the planet is plunged.

Take John Paul Getty. In 1982, after lengthy legal wrangling, the Getty Trust received Dollars 1.2bn in assets from Getty's estate. The money grew and grew. By March 1986, when I met the trust's president, Harold M. Williams, the value of its endowment trust had reached Dollars 2.8bn. Today it must be close to Dollars 4bn. The money is managed by experts. Its minimum investment objective is a return of inflation-plus-5-per-cent. In the years to June 1989 and June 1990, these investment returns were 14.3 and 11.6 per cent respectively.

Result: the Getty is sucking up tons of art and stashing it in California. In the year to June 1990 the trust's total expenditure, including operating outlays of Dollars 81m, was Dollars 250m, of which Dollars 140m was spent on 'developing its collections.' The trust is doing its job; doing what Getty wanted.

'The mission of the J. Paul Getty Museum is to inspire and educate the public by acquiring, conserving, studying, exhibiting and interpreting works of art of the highest quality within (its) fields,' says its director, John Walsh. It aims to provide visitors with 'an experience that will make them want to return again and again.' In this it is succeeding.

But what was Getty thinking of? If southern California has a surfeit of anything, it is a surfeit of fancy art. It is lousy with Old Masters. Why didn't Getty donate his money to a hands-on war on poverty?

For example, the Los Angeles school system was described recently by The New York Times as a stricken giant, hobbled by financial problems and hurting from racial and ethnic strife. Many schoolchildren in Los Angeles, said the Times, are impoverished, illiterate immigrants who have never read a book or worn a pair of shoes and whose special needs are taxing the (mostly white) teaching corps. Why didn't Getty aim his billions directly at the ghettos?

Rich people are still drooling over private art collections. I think that they should stop it. If they cannot, they should stipulate, at their deaths, that their pots and pans, their Turners and Cranachs, be auctioned to help finance the war on want. Compared with that, nailing up Van Tromp Going About to Please His Masters in a gallery in Malibu is both provocative and decadent.

US United States of America P8412 Museums and Art Galleries RES Facilities P8412 The Financial Times London Page XXIV 790
Records: Monstrous many notes] - Max Loppert on the merits of Mozart opera on period instruments Publication 930313FT Processed by FT 930313 By MAX LOPPERT

Mozart: Die Entfuhrung aus dem Serail: 1. Monteverdi Choir, English Baroque Soloists/John Eliot Gardiner. DG Archiv 435 857-2 (two CDs), and 2. Academy of Ancient Instruments Orchestra and Chorus/Christopher Hogwood. L'Oiseau-Lyre 430 339-2 (two CDs)

Mozart: La finta giardiniera. Concentus Musicus Wien/Nikolaus Harnoncourt. Teldec 9031-72309-2 (three CDs)

DID THE Emperor Joseph really remark, after the premiere of Die Entfuhrung aus dem Serail, 'Too beautiful for our ears, my dear Mozart, and monstrous many notes'? The anecdote, often quoted, is probably apocryphal; but it contains an astute observation, which is perhaps the cause of its regular re-cycling. There is indeed a discernible imbalance at the opera's centre - between the slightness of its Singspiel genre and subject matter and the splendour, exuberance and sheer abundance of its musical substance.

Every bar overflows with marvels heightening the listener's delight and simultaneously putting at risk the spectator's sense of dramatic continuity. In every Entfuhrung performance, whether in the theatre or on record, a basic problem of scale needs to be addressed at the outset - in oversimplified terms, the twin prongs of the dilemma are fulfilment of the score's extravagant demands, on singers and instrumentalists alike, versus maintenance of the necessary lightness of dramatic touch.

Two of the most recent recordings solve the problem more surely than most performances of the opera I have heard. It can be no coincidence that, unlike all previous Entfuhrung recordings, these employ 'period'-instrument orchestras: seldom have the merits of doing so - tonal mass solid but not oppressive, at-one-ness with voices, keenness of colour - seemed so obvious (and, since the playing is expert on both recordings, the familiar failings are entirely avoided). In both sets the dialogue is given in full (less on DG); so are the musical numbers (with, for instance, those hair-raising bars of far-flung decoration usually nipped out from Constanze's 'Martern aller Arten') - yet not for a moment does the long opera drag or lag.

Hogwood's is the more intimate. He leaves the music to find its own shape and direction; he does not make it his business to underline every rhythmic accent or highlight every dynamic contrast. This works particularly well in the popular-song-type numbers such as the final vaudeville, an andante of the sort Gardiner tends to urge a degree too forcefully forward.

L'Oiseau-Lyre's leading singers are matched to the conductor's relaxed Mozart manner: the quiet-spirited, gentle-toned Lynne Dawson and the touchingly ardent Uwe Heilmann prove an unfailingly sympathetic leading couple, but their ability to cope with the numerous technical challenges Mozart threw their way is relatively modest - the brilliance that he relished in his first Constanze, Caterina Cavalieri, is here considerably dimmed.

The DG is based on the semi-staged Entfuhrung production that Gardiner toured around Europe two years ago. There is a fizz, an on-the-toes quality to the execution that amply compensates for the conductor's occasionally over-rigorous beat: Gardiner's vitality, issuing as it plainly does from the desire to tap as much as possible of the opera's peculiar musical energy, is a fault on the right side. His Constanze, Luba Orgonasova, and Belmonte, Stanford Olsen, sing with ease, a quiet mastery of style, beautiful tone. They are true Entfuhrung virtuosos, less affecting, in places, than their Oiseau-Lyre counterparts, but much more vocally assured.

DG's servant couple is preferable; neither Osmin, curiously, is quite up to standard; both Selims make a strong effect. I shall want to return occasionally to the old Beecham recording, for the incomparable charm and gaiety of his conducting; I shall want to hear again such recorded Entfuhrung singers of the past as Patzak, Dermota, Wunderlich, Gerhard Unger, Edda Moser and Gottlob Frick. But for now at least, these are the Entfuhrung recordings of choice.

Similar points can be made about the Teldec Finta giardiniera, latest in Harnoncourt's recorded survey of all the Mozart operas. This work, written seven years before Die Entfuhrung, is even more difficult to keep in balance - an opera buffa which along the way disgorges two astonishingly grand, richly elaborated act-finales, a pastoral comedy for a septet of romantically entwined characters which becomes darkened by episodes of intrigue, jealousy and madness.

Again, the 'period' orchestra is a source of new-minted pleasures and long-range dramatic possibilities unavailable on earlier Finta giardiniera sets; and an even longer Mozart opera is here also given in full, without making the listener long for the pruning scissors. Those expressive tics - self-consciously underlined orchestral articulation, extremes of tempo choice - that tend to divide the musical world into Harnoncourt admirers and Harnoncourt detractors are less in evidence here; the recording was taken 'live' at a 1991 Vienna concert, but intrusive noises are few, atmospheric excitements plentiful.

Violante, the aristocrat disguised as the garden-maid Sandrina, is Edita Gruberova - pure and precisely focused, prodigious as ever in throwing off passages of ornate vocal tracery, but notably lacking lacking in spunk and spirit (she seems to have adopted some of the moonier mannerisms of the middle-period Sutherland). Belfiore, whose jealousy has driven Violante into hiding, is Uwe Heilmann - more secure than in the L'Oiseau-Lyre Entfuhrung and every bit as involving.

Other parts are less remarkably taken - from this generalisation I except Dawn Upshaw's sparky Serpetta. It is the trim cut and thrust of the ensemble and the nimble movement through the opera's picaresque situations and mercurial humours that afford the set its distinctive character, and win it an enthusiastic recommendation.

GB United Kingdom, EC P7922 Theatrical Producers and Services P7929 Entertainers and Entertainment Groups CMMT Comment & Analysis TECH Products P7922 P7929 The Financial Times London Page XIII 957
Records: Long live the blues Publication 930313FT Processed by FT 930313 By PHIL HARDY

THE BLUES Is Alright sang Little Milton a little less than a a decade ago. The faithful cheered, but in truth, the Blues seemed like a dying genre: young blacks had turned to funk and even the crowd of white worshippers at the holy grail thinned out as the likes of George Michael turned to the softer sounds of 1970's soul which they refashioned as the basis of emotive balladeering and dance music.

At the tiny Malaco label, Little Milton and fellow elderly blues survivors (among them the marvellous Bobby Bland, ZZ Hill and Johnnie Taylor) went through their traditional paces. The Blues Is Alright (MCD 7449), a greatest hits of the label, confirms they were still legendary, but also that had lost their ability to inspire younger listeners. The blues it seemed was truly dead.

Then, seemingly from nowhere, came Robert Cray to refashion the blues and achieve significant mainstream commercial success along the way. 1988's Who's Been Talkin' (Charly CDCLM 101) captures him at his bluesiest and most confident, a strident sinner confessing his sins and glorying in temptation, knowing it will all end in pain. Then the trickle became a flood as lo and behold legendary blues man John Lee Hooker, who made his first recordings in 1948, entered the 1990s with a series of hit albums. In his wake Buddy Guy rekindled the flames of a dying career and also stormed the charts. The blues, it suddenly seemed was very much alive. And so the re-issues (and advertisements featuring blues men) gushed forth.

A good starting place for beginners is the budget offering 60 Great Blues Recordings (Cascade CBOXCD 3) which spans recordings from the Flair and Modern labels mostly from the 1950s. Apart from a few tracks by Hooker and BB King it includes mostly little known performers. As a result, it is a good working introduction to the blues as a genre. For more of the hits try Sequel's The Blues Guitar Box 2 (NXTCD 185). Another triple CD package, it touches more bases, including a fair number of white blues men, but, possibly because its scope is larger, its impact is lesser. All Night Long They Played The Blues (Ace CDCHD440) is another irresistitible compilation of lesser lights, including Little Johnny Taylor, Saunders King, and the wonderful Charles Brown, that works as a whole simply because the songs and emotions tumble into each other seamlessly.

As the most successful blues man of the moment, naturally Hooker is the most re-issued. Hence the six-CD set The Vee-Jay Years, 1955-1964 (Charly CDRED Box 6) which includes virtually everything Hooker recorded during his ten years with Vee Jay. Undoubtedly, a work of scholarship, it fails to capture Hooker. Instead it merely suggests the variety of work he was capable of without celebrating his laconic passion. For that you need Graveyard Blues (Ace CDCHD421) a collection of early recording made for Specialty. Hooker's chanted lyrics and repetitive guitar work may seem simple at first listening, but their power remains undiminished after numerous plays, the mark of someone who has teased an unconsidered passion from his music.

Memory, Pain (CDCHD438) is the title of Ace's second collection of Percy Mayfield's recordings, and appropriately bleak they are. His biggest hit was Please Send Me Someone To Love in 1950, but clearly he went unrequited. Heard through a throng, Mayfield sounds like a a piano bar blues man, all tinkle and sad saxes waiting for Bogart to make an appearance. Banish the throng and you find one of the great poets of popular culture of the 1950s. Like James Dean or Jean Paul Belmondo in a Bout De Souffle, characters who strive for dignity and style but know they are not enough, Percy Mayfield knows that the dawn brings forth no new hope. In his world, lost love is the norm and suicide the major temptation, all held barely at an arm's distance by the caressing sound of the coolest blues style ever. Or as he puts it: It serves me right to suffer, it serves me right to be alone.

GB United Kingdom, EC P7929 Entertainers and Entertainment Groups TECH Products P7929 The Financial Times London Page XIII 712
Records: Composers in person - David Murray on an interesting series from EMI Publication 930313FT Processed by FT 930313 By DAVID MURRAY

IN ITS NEW, expanded form, EMI holds the copyright to many recordings of distinguished composers conducting and/or playing their own works: from Lehar, Saint-Saens, Medtner and Holst to Hindemith and Messiaen. Its 'Composers in Person' series is going to represent more than 30 of them on CDs, with the original recordings carefully re-mastered. That should whet many appetites.

On these first releases, there is occasional hiss and crackle - and the odd passage where a regular, faulty swish is audibly carried over from ancient 78rpm discs. Only aficionados will really want some of these releases: the stamp of authenticity may sometimes be faint, the musical polish of some performances inferior to some modern ones, the CD programmes constrained by what this or that composer happened to put on record. That said, here are quick notes on these first entries in the series.

Richard Strauss (CDC 7 54610 2) - his conducting of the pit-music, mostly arranged by another hand, for a silent-film version of Der Rosenkavalier in the mid-1920s (seen recently on TV) is illuminating about pace and emphasis. In old age, Strauss used rightly to complain that his operas were being subjected to ever slower, more languishing tempi. His performance of An Alpine Symphony is almost a revelation: for once, none of its candidly pictorial vignettes is allowed to outlast its welcome.

The curse of fake-symphonic pretentiousness is lifted, and whatever exactly the 'symphony' amounts to - it sounds thoroughly taking, original, even moving. I am not sure that any modern recording has captured its contrasted effects so vividly, or rather any modern conductor; Strauss knew not only precisely what he intended, but how to extract it from a sympathetic band like the Bayerische Staatskapelle. The Stravinsky double album (CDC 7 54607 2) must count only as a supplementary volume to the huge, all-but-compendious Sony collection I reviewed here a while ago. As soloist in the Capriccio, the composer sounds tame, careful, studio-bound where extrovert dash should be the order of the day.

Yet the album boasts notable attractions among its 1930s recordings. To the great Symphony of Psalms the Alexis Vlassov Choir, whose members must have been Russian expatriates, brought a passionate instinct for ecclesiastical chant that I have not heard equalled in a modern concert.

The Octet had a team of crack French wind-players led by the flautist Marcel Moyse, and their dry, nervy brilliance is still exciting. We also hear Stravinsky with his long-term concert partner, the splendid violinist Samuel Dushkin, in several of the transcriptions they devised together for their recitals.

Milhaud (CDC 7 54604 2): the jovial composer features mostly as conductor, with the benefit of characterful orchestral playing in tones that could barely be imitated now. Those sounds - lean, pungent, often shrill - were nonetheless what he wrote for, from the 1919 Boeuf sur le toit to the 1936 version of his Suite Provencale; and his own sense for treading a thin line between cramped popular pastiche and unbuttoned vulgarity was unerring. So it was too in his and Marcelle Meyer's account of the evergreen duo-piano Scaramouche, rumba-finale and all.

Shostakovich (CDC 7 54606 2) is split between his 1958 recordings as soloist in his two piano concerti, which now sound remarkably immediate, commanding models (good trumpeter in no. 1), and some very uneven solo pieces. The early 3 Fantastic Dances sound dreadful, as if he were tired of bothering with them. The first four of the Preludes & Fugues are thoughtful, withdrawn, very much not concert-performances; better to hear Madame Nikolaieva in them. The curdled recording of no. 24, the last pair, is of uncertain provenance, but Shostakovich's playing there is far more vital and communicative than in any of the others.

It should have been a good idea to pair Poulenc and Britten (CDC 7 54605 2) on a disc with their long-term tenor partners, but the choice of works makes them a queasy combination. Pierre Bernac (in his prime in 1946) addressed Poulenc's wide-ranging, deeply felt Eluard cycle Tel jour, telle nuit with heart-seizing insights. He did no less for other songs to lighter, teasing verse by Apollinaire, Aragon and Louise de Vilmorin - always with the composer's inspired prompting from the piano.

After those, Britten's 7 Michelangelo Sonnets and his 'Holy Sonnets of John Donne' for the voice of Peter Pears sound abstractly intense, intricate, crabbed by their fascination with ostinato patterns and other such. What seems to be the nub of the problem is exposed in the Michelangelo songs: how many Italians would even recognise the tight, dry Pears/Britten settings as Italian, let alone as answering to Michelangelo's brave, unconstrained feeling?

GB United Kingdom, EC P7929 Entertainers and Entertainment Groups TECH Products P7929 The Financial Times London Page XIII 813
Records: Top notch requiems - Ronald Crichton reviews two Brahms requiems and Gounod's 'Mors et Vita' Publication 930313FT Processed by FT 930313 By RONALD CRICHTON

TWO recordings of the German Requiem of Brahms may come as a revelation to those with early memories of partly amateur performances - voices strained, strings scraped and wind squealed or burbled. The shock comes not only from first-rate singing and playing but from the use of period (1860) instruments - among the obvious gains are sparing use of string vibrato and hard drumsticks. The profound sighs of the opening of the new EMI set with the Schutz Choir of London and the London Classical Players under Roger Norrington (CDC 7 54658 2), will immediately show what I mean.

As well as clarity Norrington's reading has a plainness and restraint both unexpectedly moving and well matched to the religious side of Brahms's temperament. Baptised a Lutheran in Hamburg, he did not become an orthodox believer, but was a devoted student of the Bible. From the Bible he chose the text for the Requiem, less concerned with the peaceful repose of the dead than with consolation for the bereaved living. Norrington's reticence does not exclude high drama: the timpani at the climax of the second movement (the slow march in three-four time), are terrifying. The more impenetrable, thicket-like pages of the fugal sections are less daunting than usual.

Those who like a more generally dramatic approach and a warmer, more resonant acoustic may try the 1991 Philips version with John Eliot Gardiner conducting the Monteverdi Choir and the Orchestre Revolutionnaire et Romantique (432 140-2). In his booklet note Gardiner talks of laying bare the rock face of Brahms's texture. It turns out to have quite a few plants clinging to it, but many will think no worse of it for that. The two last movements in particular are impressively handled. For once the consoling final pages sound like a real ending and the arch form of the whole is perceptible.

Gardiner's soloists, Charlotte Margiono and Rodney Gilfry, are luxurious. The soprano's exquisite, ethereal notes remind me of an admired Bach singer of the inter-war years, Dorothy Silk. Norrington's Lynne Dawson and Olaf Bar, less luscious, are equally convincing. Norrington's speeds are slightly faster. There is room on his disc for the Burial Song, op. 13, another revealing glimpse of the North German side of Brahms.

For a complete contrast turn to Gounod's Mors et Vita (with Michel Plasson conducting the Orfeon Donostiarra and the Toulouse Capitole Orchestra (EMI CDS 754459 2, 2 CDs). Gounod was a Catholic who came under the influence of the Dominican preacher Lacordaire and at one time contemplated entering the priesthood. For most of his career he was torn between the attractions of sacred and profane love - but more prosaically, between church and opera house.

Mors et Vita, a 'sacred trilogy', was written for the Birmingham Festival of 1885 as a continuation of Gounod's Redemption, given there with huge success a few years earlier. Mors et Vita was dedicated to the Pope, Leo XIII, whose sermons Gounod had translated into French. The first and longest of the three parts is a Requiem, using the traditional Latin text. The style of the Trilogy is clearly designed for large, resonant buildings (town halls, the Albert Hall or Westminster Cathedral), where the echoes can prolong the sound of the slow-moving harmonies. Outwardly simple music, (eminently) accessible to large audiences.

Accessible, but not trivial or vulgar. There is an a cappella double chorus (Gounod adored Palestrina); elsewhere the smooth surface is ruffled by chromatic flurries, and there are hints (quite sinister in this context) of the whole-tone scale. The large orchestra is discreetly used. Plasson's soloists are distinguished: Barbara Hendricks, John Aler and Jose van Dam spin their grateful lines with faultlessly even tone. The alto, Nadine Denize, blends easily in spite of greater vibrancy in her fine voice. The choir from San Sebastian offer a rich, firm body of sound but they make less of the Latin words than the English choirs do of Luther's German in Brahms. Plasson steers a skilful course between the twin dangers of hustle and inertia.

GB United Kingdom, EC P7929 Entertainers and Entertainment Groups TECH Products P7929 The Financial Times London Page XIII 714
Arts: Berlin after Karajan - Andrew Clark finds Claudio Abbado revitalising the orchestra Publication 930313FT Processed by FT 930313 By ANDREW CLARK

WHEN Claudio Abbado hosted a dinner for the Berlin Philharmonic Orchestra during last month's Italian tour, he told the musicians he did not want to be called maestro. 'I'm Claudio - for everyone', he said. Returning to Berlin, orchestra and conductor plunged into rehearsals for a concert cycle inspired by the late 18th century German poet Friedrich Holderlin - featuring composers as diverse as Ligeti, Rihm and Reger.

No two events better symbolise the changes in Europe's leading concert orchestra since the death of Herbert von Karajan in 1989. No-one would have dreamed of addressing Karajan by his first name, nor would he have championed the 20th century programmes that dominate the orchestra's 1992-3 season, the first to bear Abbado's stamp as artistic director.

There was bound to be a reaction to Karajan's 35-year reign, but few can have imagined it would be so fast and sweeping. In the vacuum after Karajan's death, the musicians seized the chance to move out of his shadow and modernise their image. Abbado was the conductor best equipped to share responsibility for the changes.

Where Karajan was authoritarian, Abbado is mild and approachable. Conflicts which marred relations between chief conductor and orchestra in the 1980s are unlikely to be repeated. The musicians now have more control over their working conditions, personnel and recordings than any other contract orchestra. Tours are no longer dependent on Karajan's behind-the-scenes deal-making: the orchestra goes where and with whom it wants - in May to London with Bernard Haitink, followed by Israel and the US with Abbado. The emphasis now is more on the music than the man in charge.

But Abbado is no door-mat: he has set out his artistic agenda and won the orchestra's loyalty by virtue of his musicianship and imagination. Despite warnings from the prophets of doom, expensive projects like last year's concert performances of Il viaggio a Reims and this month's Holderlin cycle have been an artistic and box-office success.

Abbado's repertoire and skills have nonetheless proved double-edged. Widely respected for his Mahler and Brahms performances, he has yet to prove himself in other core areas of the orchestra's Austro-German tradition. His Mozart, Beethoven, Bruckner and Strauss lack the authenticity he brings to Berg, Musorgsky and Verdi.

Nor is he a sound-merchant in the Karajan mould. The orchestra's distinctive Klang has lightened up, becoming more slender and digestible, less luxuriant. The increase in 20th century repertoire may be partly responsible. The orchestra has also started engaging conductors with a distinctly un-Karajanesque concept of sound, like Nikolaus Harnoncourt and Pierre Boulez. Another contributory factor is the turnover of personnel since the late 1980s - the orchestra is noticeably younger, more international.

But the brighter, more energetic sound also reflects Abbado's technique and personality. He is less of a perfectionist than Karajan, less disciplinarian. Where Karajan kneaded the sound in circular motions, gathering it and controlling it in a tactile manner, Abbado is more spontaneous in performance - the arms flung open, the overall effect more explosive. The orchestra sounds less like a machine, the music less awesome and remote.

Unlike its chief rival, the Vienna Philharmonic, which guards its tradition without recourse to a chief conductor, the Berlin Philharmonic has invested heavily in change. Under Abbado, it is becoming a less exclusive, more versatile and forward-looking instrument. In the competitive musical world of the 1990s, the two are counting on each other to make it work.

The Berlin Philharmonic's Holderlin cycle opened with three sold-out Abbado concerts contrasting Holderlin settings by contemporary and Romantic composers. Abbado also took part as conductor and pianist in a chamber music programme of Nono, Maderna, Kurtag and Holliger.

The choice of theme reflects Abbado's knowledge of and identification with German culture, as well as his familiarity with postwar Italian composers who have been attracted to Holderlin's world. Holderlin (1770-1843) is a poet whose verse expresses a longing for the spirit of the classical era and a belief in nature and beauty as healing forces. Mentally ill for the last 37 years of his life, he continued writing in fragments.

Holderlin's musical appeal lies in the melody and rhythm of his verse, as well as the purity of his German. The challenge facing the composer is to preserve and, if possible, enhance this appeal. Giacomo Manzoni's Holderlin frammento for chorus and orchestra came over unmistakeably as a post-1960s product - a complex web of aleatory effects and choral echoes, requiring the musicians to scrape and stamp their feet, and ending appropriately with the poet's words 'Pardon if I do not make myself well enough understood'.

By contrast, Wolfgang Rihm's waif-like Holderlin-Fragmente for baritone and orchestra captures the mood of innocent isolation in the text, using simple brush strokes for each word (cleanly enunciated by Johannes Kosters). Ligeti's Drei Phantasien for unaccompanied chorus shows a similarly keen and detailed response, avoiding the self-conscious vocal effects of Heinz Holliger's Die Jahreszeiten or the anaemic quality of the Holderlin extract from Nono's Prometeo. Only Richard Strauss, in his Drei Hymnen (sung by Karita Mattila with Elysian beauty of tone), rode roughshod over his material, clothing it in the same majestic-heroic flourishes he applied to everything else.

Thanks to its vivid contrasts and Abbado's inspired direction, the main programme had a powerful cumulative impact, ending with the nostalgic glow of Reger's An die Hoffnung and the heavenly harmony of Brahms' Schicksalslied. The chamber music concert, less convincing in overall effect, included a soporific 45-minute recitation from Hyperion, which I would have gladly sacrificed for a chance to hear Britten's Holderlin settings. The Leipzig Radio Chorus, directed by Gert Frischmuth, made an outstanding contribution to both events.

Claudio Abbado conducts the Royal Opera's new production of 'Pelleas et Melisande' at Covent Garden, first night March 24. The Berlin Philharmonic gives its annual Europa concert on May 1 at the Royal Albert Hall, conducted by Bernard Haitink

GB United Kingdom, EC P7922 Theatrical Producers and Services CMMT Comment & Analysis P7922 The Financial Times London Page XII 1022
Arts: Concern for the young - Radio Publication 930313FT Processed by FT 930313 By BA YOUNG

RADIO 1, with its usual concern for the young, gave Rape is a Four-letter Word on Monday (International Women's Day, celebrated only on Radio 2). Radio 1 followed a listen-to-me title with sensible advice from a judge, police officers, 'agony aunts' of both male - and female-oriented journals and a psychologist. It is reckoned that only one rape in ten is reported; in three-quarters of those that are, the woman knows her partner. The expert presenter was Nicky Campbell, and he chaired a live discussion afterwards. 'I was very drunk,' one victim admitted. 'I was only fifteen.' More such programmes are clearly needed, with items like the helpline on 0800 850 800.

And indeed next day Radios 1 and 2 had a joint 90-minute phone-in, Talking 'bout my Generation, where the young and the adult voiced their respective concerns. What I heard was sadly full of old, rather Tory, thoughts. But next Monday Radio 1 begins its three-part Consequences about rape, pregnancy and parenthood.

In the circumstances, Saturday's Body Politics, Radio 3 on sex in the 1920s, had less than its potential interest. On Tuesday and Wednesday, Out of the Shadows, about the 1920s movies, was good on the reactions of European directors to the post-war explosion of the industry (led by the Americans); and Friday gave us two giants of the decade, Le Corbusier and TS Eliot.

Radio 3's Sunday play, Sarah Woods's Silence in Blue kept the sex offstage. Lisa, crossed in love and sad at an abortion, goes to Australia to recuperate, but decides instead to drown herself scuba-diving, when her unborn child flies up to the skies. A mixture of simple travel-information and interior thought, this struck me as one of the silliest plays I ever heard.

On Monday, Radio 4 did better with Nothing Happens in Carmincross, adapted by Mike Gerrard from Benedict Kiely's novel. The title represents the New York thoughts of Mervyn, an Irish-American; but how wrong he is, for Carmincross is in Northern Ireland, Radio 4's top drama locale. Mervyn (Ian McElhinney) links up with Deborah (Kate Binchy), an old flame followed about by her neglected consort Mandrake. After a look at Ireland, they attend a wedding party at a Carmincross hotel; a warning comes from the IRA, then a bomb that breaks up the party but reconciles Deb and Mandrake. This is reported in New York as a 'distraction'. Eoin O'Callaghan was the director.

Neil Kinnock was John Humphrys's victim in his courteously critical series On the Ropes (Radio 4, Monday). He was frank about what he confessed as errors and expressed no hope of being Party-leader again. Perhaps he should be in Radio 4's Friday series, Famous for 15 Minutes.

The Ghost of Thomas Kempe is a great story by Penelope Lively read through the week by Willie Rushton - the first Radio 5 youth-offering I have really liked, except the cricket. Kemp turns up in our own day as a poltergeist in the house where 10-year-old James lives, and tries to involve him in his activities, to everyone's alarm. Full of fun, and very well done.

On Sundays, the World Service series on South Asia has been covering religions. I caught this week's, on the Parsees and the Indian Jews. I learnt much about the Zoroastrian Parsees and their devotion to Ahura Mazda. Their numbers are dwindling, due to a housing scarcity, though the Hindoos have always been on good terms, apart from their Towers of Silence for the dead, which will not do in multi-storey Bombay. The Jewish settlements are diminishing too - they tend to move westward to Israel.

GB United Kingdom, EC P4832 Radio Broadcasting Stations TECH Services P4832 The Financial Times London Page XII 634
Arts: Russian soul bared - Poetry in Performance Publication 930313FT Processed by FT 930313 By MICHAEL GLOVER

'WE ARE AGAINST the McDonaldsisation of life] We are against the international conspiracy of vulgarity against human subtleties' thundered the Thunderer himself Yegveny Yevtushenko, poet of all the Russias, who flew into London this week for an unexpected two-date tour which began in the cramped surroundings of Waterstone's, Charing Cross Road.

There is no-one else quite like Yevtushenko in the world of poetry. His demeanour is that of a man accustomed to being feted the world over - the Hollywood-like aura of his personality; the extravagance of his charm; the peackockish nature of his dress, which included a tremendous woollen scarf as red as the Red Flag itself (though made by Burberrys); the dramatic exuberance of his verbal delivery.

Yevtushenko is the populist demagogue of poetry, a filler of football stadia in his native land; the poet whose books move off the shelves faster than bread. All his life he played a dangerous, venturesome game with the Soviet authorities, sniping at the heels of the tsars of communism. He never emigrated; he preferred to fight the system from within and, like Neruda in Chile, he became an Untouchable: too popular to be made away with; the licenced beast; the conscience-solver; the token of liberalisation who was rewarded with his dachas and permissions to travel when and wherever. But was he puppet or puppeteer?

Now in his sixtieth year, he seems as irrepressible as ever, ranting and charming by turns; punching his fist into the air, kissing the hand of his English publisher - the very personification of the virtues and style of Old Mother Russia, whose travails he continues to lament in his poetry. The fact is, of course, that the two are indistinguishable. And no, it is not mere vanity when he says, as he did this week, 'For me, the most important thing is to express myself. My main fear is the experience of this life could just be gone - dissolved in the abyss of oblivion'. The fact is that he must survive in order to speak for Russia's soul. Russia needs him. But he has learned a thing or two by surviving so long. 'Yes, I am praying,' he told us. 'I'm working for the future of Russia - but all prophets are false. I was an MP for three and a half years, then I happily left this field. In the beginning politicians are innocent liars - they are forced to lie by us. I am a poetician, not a politician.'

Some of the audience thought that delightful piece of wordplay too fine a distinction - but when he went on to read 'Between the City of Yes and the City of No' in the original Russian, dancing and prancing on his toes, crossing his arms like a pair of flourished sabres, writhing his body like a snake, and turning up the volume of his voice to an almighty growl, it was quickly conquered.

India is the second-largest publisher of English-language books in the world, but its literature remains largely unknown in the west. To lighten our darkness somewhat, the Arts Council is currently touring a quartet of Indian writers, which include the poets Nissim Ezekiel and Meena Alexander.

The elderly Nissim Ezekiel, a spry, fragile figure in shabby grey flannels and blue plimsolls, is a poet of quick, darting, sardonic humour, who enjoys working in many different forms and, being a successful playwright too, projecting different personalities through his poems. One of a sequence of 'very Indian poems in Indian English' entitled 'Soap' dramatised an argument between a customer who had bought a defective bar of soap and a bristly, pugnacious shopkeeper. As Ezekiel explained to us, he is a poet who roams the streets of Bombay listening out for those quirkish turns of phrase and strange dislocations of language that give it spice and humour.

Meena Alexander, on the other hand, a poet who now lives in Manhattan and spent much of her early life shuttling between the Sudan and Kerala, was a more troubling figure altogether. Her poems often concern themselves with terrible acts of violence - racist incidents, murder, rape, beatings - but they were delivered to the accompaniment of such winning gestures, and with such a high gloss of charm, that we quite forgot ourselves in them.

GB United Kingdom, EC P7929 Entertainers and Entertainment Groups PEOP Personnel News P7929 The Financial Times London Page XII 752
Arts: Harvey's Passion - Concert Publication 930313FT Processed by FT 930313 By MAX LOPPERT

IT HAS taken 12 years for Passion and Resurrection, Jonathan Harvey's 1981 'church opera' for Winchester Cathedral, to make the journey to London. At Westminster Abbey, on Thursday, it left a remarkable impression - a 90-minute work of controlled mastery, economical in its forces (15 singers taking 18 parts, small orchestra), sure in their employment, and hypnotically powerful in overall effect - and so the delay seemed equally remarkable. Plainly, Passion and Resurrection ought by now to have won for itself a regularity of performance comparable at least to that of the Britten Church Parables, of which it is a distant relative.

Harvey's aim was to make his drama - 12 scenes showing the final episodes of Christ's life, followed by his death and resurrection - flower out of church service in the manner of the medieval church dramas. So the opera is enclosed within a liturgical event, and the audience is invited to join in the congregational singing of plainsong hymns and the concluding Alleluias and Amen. But, far from proving too limiting, too 'localised' in scope, the blend of opera and liturgical ritual has been so precisely achieved that even to an outsider to Christian worship it affords a wholly gripping experience.

The nice judgment of where exactly to place those hymns - at moments of climactic intensity in the unfolding of the narrative - is just one token of Harvey's distinctive, confidently sustained artistic vision. He has bound his scenes (most of them dialogues supported by spare accompaniment) by means of instrumental interludes which vary in style, vocal idiom and language according to the dictates of the dramatic moment - from modern resumes of church-musical forms in modal harmonies to agonisedly angular non-tonal outbursts.

Another token of the composer's skill, highly yet unassumingly theatrical, is his placing and contrast of timbre - 'antique' brass echoing awesomely, the shiver and tremble of percussion, the haloes of high harmonics painted by the strings around the recitative. With beautifully calculated and contained radiance the austerity of the male-voice-dominated ensemble is eventually relieved by the female-voice incursions of the 'Resurrection Garden', which builds to a concord of honestly attained grandeur.

The sum is a purposeful, compelling modern revival - from the inside, as it were - of an ancient artistic form. The text, extracted in modern-English translation (by Michael Wadsworth) from an Italian and a French medieval passion-plays, was on Thursday unclearly delivered by too many of the participants. This apart, the performance was of very fine quality - played by Docklands Sinfonietta, sung by Michael George (Jesus), Paul Agnew (Pilate) and Juliet Schiemann (Mary Magdalene) at the head of a devoted cast, and conducted by Martin Neary.

As the latest offering of the Arts Council's Contemporary Music Network, this simply staged Passion and Resurrection proceeds over the next ten days to the cathedrals of Canterbury, Liverpool, Sheffield and Llandaff, and to St Mary's Church, Bath. It is well worth catching in any of those places.

GB United Kingdom, EC P7922 Theatrical Producers and Services CMMT Comment & Analysis P7922 The Financial Times London Page XII 528
Arts: More rows about the rough stuff - Screen Publication 930313FT Processed by FT 930313 By NIGEL ANDREWS

IT BEGINS with a dust-storm on the horizon; swells to a giant twister; then howls through the land turning homes to matchsticks and humans to tumbleweed. It is turbulent and merciless; it is as regular as Christmas.

The violence-on-the-screen debate, in case you have been on another planet, is back again. In the cinema, fate or chance or Hollywood have appointed 1993 the Year of the Shocker. Films like Reservoir Dogs, Man Bites Dog, Hellraiser 3 and next week's Candyman - the last two films courtesy of our own Clive Barker - ensure a high blood quotient in the cinema. Henry, Portrait Of A Serial Killer has re-opened debate in the video arena. And TV we know about from our own PM, though his idea of an average evening's viewing seems to differ from that of others.

All this plus a new book, Hollywood vs America by Michael Medved (HarperCollins, Pounds 17.99), presenting in print the case for family values and the Moral Right: 370 pages of anger and sorrow on every supposed exemplar of movie mayhem, from A. Schwarzenegger to B. DePalma via M. Culkin. (The star of Home Alone gets a knuckle-rap for the way he treats burglars.)

This row about rough stuff in the movies - let me leave the small screen to other specialists - returns every decade and brings out the worst and best in everyone. Twenty years ago it was A Clockwork Orange and Straw Dogs; ten years ago it was the video nasties. Now it is 'Should we or should we not encourage films about serial killers and snuff film-makers?' These two are the flavour of the season. And the season began last year with the big-screen release of films like Henry, GoodFellas and Basic Instinct, plus the startling Oscar-sweep of The Silence Of The Lambs.

This year's New Violence builds on those examples, especially on Lambs and Henry. The first offered a documentation of the physical/surgical realities of a supposed serial killing case, plus a consultant psychopath (Anthony Hopkins's Hannibal Lecter) who mesmerised the world with his mixture of beast and boffin. The second aired the hitherto all-but-taboo topic of snuff movies and DIY voyeurism in the video age.

Linking the two films, and their 1993 offspring, is the notion of murder not for gain but for sport, spectacle or (in Lecter's case) sardonic pseudoscience. Man Bites Dog has a 'hero' who records his own brutal killings on video-camera. Candyman has a serial psychotic who wields a hook. And the scene in Quentin Tarantino's Reservoir Dogs which had hardened critics and fellow film-makers gasping in shock or even exiting the cinema featured a crook torturing a cop with a razor.

What made this scene unnerving was not any physical explicitness: indeed the camera cut away at moment of impact between sharp instrument and about-to-be-severed ear. It was the fact that the torturer admitted to having no information he wanted to extract. He merely enjoyed torturing.

Each new movie-making age finds a new stratum of evil to explore, and each new movie-going age must decide if the works on show are honourable or meretricious. If the second, the usual two-word charge sheet reads 'gratuitous violence'. But what marks out today's cinema of cruelty is that the phrase has lost pejorative point in an age when films featuring brutal or sadistic events are about the excitement that characters obtain from that seemingly motiveless cruelty. The phrase 'gratuitous violence' moves from a description of the film's sensibility to a definition of its subject.

Years of censorship tradition and media moralising have decreed that murder, torture or beating are justified as a dramatic spectacle if there is a sound dramatic reason or motive. It can be for crime passionel or revenge; it can happen in the hurly-burly of a crime or robbery; it can be the cathartic rough justice meted out in last reel by hero to villain.

What it cannot be is violence for fun. Hence the seminal brouhaha, two decades ago, over Kubrick's A Clockwork Orange. This featured a gang of London bovver boys who beat up whom they chose and how they chose, wafted from one attack-ground to another on a tide of sadistic impulse. When a series of 'copycat' crimes followed the film's release in Britain, Kubrick withdrew it and has not allowed it to be shown in UK cinemas again.

It remains a moot point whether a film like A Clockwork Orange actually creates violence or gives a new style and direction to those already waiting to commit it. Those who rush to the censorship prescription disregard this point along with many others. To author Michael Medved's credit in Hollywood vs. America, he condemns the folly of official intervention. But like many denouncers of screen violence who also denounce statutory censorship, he is censoriously devoted to the notion that a broader type of copycatting exists: whereby impressionable filmgoers catch the 'general' habit of violence from a film even if they do not mimic the specific deeds depicted.

The evidence - and Medved cites yards of it - still fails to prove that this broader form of imitation exists. It seems at least arguable that movies take their cue from life as much as, if not more than, life does from movies; and that the eruption in the early 1990s of films about violence for violence's sake is a response to a world where, long before the 1990s, the chronicling of cases involving crimes-for-kicks or obscurely motivated brutalities has occupied many a Western newspaper page.

What disturbs us about films concerning violence-for-pleasure - those in which gratuitous violence moves from style to subject - is the seeming motivational void around the crimes or outrages and the viewer's inability to get a moral handhold on the subject.

There is no easy catharsis in films like Reservoir Dogs or Man Bites Dog, as in the make-my-day violence dispensed by hero to villain in films from Dirty Harry to Under Siege. There is no supernatural get-out clause, as in a horror film where everything can be blamed on the Devil or the Beyond. Above all, there is no ready moral which we can extract after the film, which might make up for our bewilderment during it as we search for motive/reason/explanation.

No ready moral except one. The box-office revenue proving that we the public are drawn to films like these, by the tens of millions, suggests in turn that violence-for-thrills is not really an arcanum at all. We all recognise, even when we most cry innocence or ignorance, the attraction and excitement of 'gratuitous' violence. And we all respond - licenced by the fantasy that we are watching fiction - to the queasy truth that lucid intelligence can co-exist with human bestiality (Hannibal Lecter).

We also live in a world besieged day by day by the evidence of 'motiveless' crime or cruelty for kicks. Do the movies shape monsters or do monsters shape the movies? If the next frontier in the Cinema of Violence is the film where violence is its own reward and excitement, human beings might turn the light of enquiry onto themselves before shining it censoriously on a genre they pretend to condemn as alien when it may be a part, however small, of each of us.

GB United Kingdom, EC P7812 Motion Picture and Video Production CMMT Comment & Analysis P7812 The Financial Times London Page XI 1253
Arts: Question of attribution - Off the Wall Publication 930313FT Processed by FT 930313 By ANTONY THORNCROFT

HAVE THE sackings in the London auction salerooms, which have claimed some well respected experts, combined with intense pressure on specialist departments to hit profit targets, had a debilitating effect on the veracity of the auction rooms' catalogues?

In the current recession fewer good items are being put up for auction, but dealers complain that not only has there been a substantial falling off in quality in recent months, but also in the accuracy of the catalogue descriptions. In pictures, the main complaint is that the actual canvas can bear little relation to its glossy photograph in the catalogue: anyone foolish enough to bid without viewing the lot could be disappointed with their purchase. But generally, catalogue entries on paintings, especially expensive paintings, are almost overburdened with information.

The problem lies in sectors where time causes wear and tear to antiques and the restorer has been active - notably ceramics and furniture. One recent sale in particular, of furniture at Sotheby's in February, has caused a great deal of concern among dealers, many of whom felt that some lots were not all that they were made out to be.

Dealers are in an invidious position. They are both the great rivals of the salerooms and also their best customers. Many of the doubtful lots will at some time have passed through the hands of dealers and carry their attributions. Dealers also make their biggest profits when their expertise enables them to snap up poorly catalogued treasures. But they also worry that if a private collector buys a wrongly attributed antique the whole business suffers in the long run.

Furniture dealers are never likely to agree with all the catalogue entries but in this auction the criticisms were vociferous. 'Surely those 18th century wall lights are modern?' 'That Queen Anne armchair has new legs. They are described as 'good' but if they are they justify an estimate of Pounds 10,000, not Pounds 5,000'. 'Those 18th century armchairs have modern needlework'. 'These 18th century pier glasses have 20th century carving'.

One particular lot caused a great deal of concern. A pair of parcel gilt window seats, which sold for Pounds 30,000, was reckoned to be modern. And so it went on. (Sotheby's disputes the fact that it is cutting any corners. Furniture expert Charles Walford had re-examined the above mentioned pieces when making condition reports and 'saw no reason to doubt them whatsoever'.)

Many of these opinions might be debatable but there was enough consensus for the dealers to be taken seriously. They do not blame the cataloguers. They attribute any solecisms to the extra workload caused by the staff cuts at the auction houses, and the pressure to make every item seem attractive, an impossible task when only the most desperate owners will dispose of decent objects in the current depressed market. One prominent dealer described a catalogue as 'just a load of lot numbers.'

Now that the salerooms frequently sell direct to the private collector they must make sure that, in difficult times, they do not sacrifice accuracy in the pressure to achieve turnover targets.

Last year a half of all the West End's box office money came from just ten long running modern musicals. In 1993 it should be even higher with the successful launch of Crazy for You, and with City of Angels and Sunset Boulevard to come. The public's appetite to forget its troubles with escapist nostalgia knows no bounds.

In the two days after it opened last week Crazy for You took almost Pounds 300,000 at the box office, a record for producer Michael White. But then Crazy for You is a big show in every way. It re-opened the Prince Edward Theatre, refurbished at a cost of Pounds 3m, and it cost another Pounds 3m to put on. The money comes from Roger Horchow, and his friends.

Horchow is an American mail order magnate who sold out to General Cinema for Dollars 117m - which allows him to indulge his passion for the music of the Gershwins. It is proving a profitable passion: he is recouping handsomely on the Broadway production, and, despite weekly running costs of Pounds 150,000, the exuberant West End show, with its old fashioned values in terms of costumes, chorus girls and ritzy song and dance numbers, should hit the spot with the middle aged, the middle class, indeed middle England generally - traditional theatre goers who in recent years have been starved of product.

So farewell, then, the Arts Council of Great Britain, Lord Keynes' idealistic post-War creation which was to usher in the Brave New World. In an almost unrecorded move the government's lukewarm sop to Scottish nationalism this week deposited the ACGB to the dustbin. Now Scotland and Wales will have their own independent Arts Councils and there will be an English Arts Council operating in London. An Act of Parliament will be needed to make the changes official.

It all seems very messy. The Secretaries of State for Scotland and Wales will hand over the annual subsidy to the Councils but the actual sum, in theory, will still be negotiated from the Treasury by Peter Brooke, the Heritage Secretary. As things stand at the moment the projections are that the grants for the next two years will represent real cuts in funding. Surely the Scots and the Welsh will not stand for this at the start of a new regime.

The arts in Scotland and Wales could gain from the inevitable politicking. Just before the election last year the Scottish Office somehow found Pounds 500,000 to help Scottish Opera out of a financial embarrassment. Welsh National Opera also received a sizeable hand out from the Welsh Minister. Local pressures could mean that the main arts organisations in the two countries will do well out of the new arrangements by playing one Minister off against the other while the English Arts Council may become a poor relation.

GB United Kingdom, EC P5999 Miscellaneous Retail Stores, NEC P7922 Theatrical Producers and Services P8699 Membership Organizations, NEC CMMT Comment & Analysis TECH Services P5999 P7922 P8699 The Financial Times London Page XI 1038
Books: Mysterious Lilli - Fiction Publication 930313FT Processed by FT 930313 By ISABEL QUIGLY

IN A HOTEL GARDEN by Gabriel Josipovici Carcanet Pounds 12.95, 148 pages

XANTHIPPIC DIALOGUES by Roger Scruton Sinclair-Stevenson Pounds 15.99, 277 pages

THE PSYCHOLOGICAL MOMENT by Robert McCrum Secker & Warburg Pounds 14.99, 225 pages

SINGLE people often have a surrogate family, the sort now called nuclear, good listeners over the washing up, reassuringly domestic. 'Fish Pie', the second chapter of Gabriel Josipovici's In A Hotel Garden, consists almost entirely of dialogue over a family supper, with interruptions from the sharp-eared son. Even the adult talk is elliptically plain although, like ordinary chat well recorded, it suggests what may or may not be, what happened or did not or might have done.

Ben has been on holiday in the Dolomites and, back in London, is telling his friends Fran and Rick about it: well, something about it. Earlier, walking the dog, he has told Rick how his girlfriend Sand left him straight after the holiday and, with relief, he disposed of the debris in black plastic bags. Narrative then tells more of what happened on the holiday, a meeting with Lilli, a Jewish woman on her way home from Siena, where she was looking for her grandmother's past; a great mountain walk with her; Lilli's stay in Siena, reliving a family farewell made final by the Holocaust.

Of all this, Lilli's Jewishness in particular, Ben understands little, though he feels much and guesses something. Lilli's experience of the hotel garden in Siena, and Lilli herself, remain mysterious to him, glowing with some inner importance, some experience of ineffable pain, some perhaps misunderstood metaphor. This extraordinary book can be read in an hour, but it glows on in the senses like the rock on the postcard Ben sends his friends that, touched by the setting sun, glows in the darkness.

Almost without descriptions except of landscape in the mountain walk, it offers a kind of otherness in which each question leads to another, each door opens, like the hotel door onto the garden, onto other lives, memories and cultures, asking complex, endlessly circular questions.

Roger Scruton's Xanthippic Dialogues, a riotous send-up of scholarly writing, can be read in two ways. You can read the footnotes, which are numerous and often long, ignoring the text but ending with the index, which of course will take you back to it. This index is said to be compiled by one of Flann O'Brien's creations, HP de Selby, and needs cryptographic talents, since most of its names do not appear in the text, only echoes of them, internal quotations, hints and ideas.

Or you can read the text, supposedly discovered in modern times, under odd circumstances. Socrates' wife Xanthippe, Plato's mother Perictione, his sister Potone and his nurse Castollux, Praxiteles' model Phryne and assorted ancient Grecian ladies are assembled to rethink and humanise our philosophical past and put the record straight. Each is a vivid character, Xanthippe vividest of all: not a shrew or a harpy as history remembers her, but a sympathetic, sharp-witted, clear-eyed companion to the less than heroic curmudgeon she calls Socks.

If philosophy seems an unlikely subject for comedy, try this.

Robert McCrum's The Psychological Moment suffers by comparison with two such companions, having neither numinous qualities like the first nor scholarly fun like the second. Of course plain realism may produce as good a result, but in this case it seems inadequate for its subjects - betrayal, grief and guilt. It is an upmarket thriller about dirty tricks in Northern Ireland and, because the narrator went to live in America when he was nine and grew up to become one of Jimmy Carter's speechwriters, it is written in American English.

Dense and often confusing in its action it has Sam Gilchrist, born Seymour le Fevre, writing an account of things that happened years earlier, a task of filial impiety made possible by his father's death. For the first chapters, when it is impossible to know what weight to give people and events, things remain uninteresting - near names, places and historical signposts: not mysterious, simply a jumble of fictional facts. But later they pick up character, the pace quickens and its Anglo-American view of English life throws new light on familiar places. It may be faint praise, since it clearly aspires to more, to call it a good read; but so it is.

GB United Kingdom, EC P2731 Book Publishing TECH Products P2731 The Financial Times London Page XI 752
Books: Rape - or murder Publication 930313FT Processed by FT 930313 By NICHOLAS BEST

DEGREE OF GUILT by Richard North Patterson Hutchinson Pounds 14.99, 548 pages

HANDS ON by Andrew Rosenheim Mandarin Pounds 5.99, 282 pages

THE LAST STATION by Jay Parini HarperCollins Pounds 14.99, 290 pages

DISAPPEARANCE by David Dabydeen Secker & Warburg Pounds 7.99, 180 pages

IN A hotel room in San Francisco, America's most famous modern novelist lies dead. Next to him, still clutching the gun that killed him, a beautiful woman struggles to rearrange her clothing. She is a nationally known TV journalist and she has just fended off a rape attack, the kind of attack associated with the likes of Mike Tyson or William Kennedy Smith. She has been forced to kill to protect her honour - or so she claims, and who is going to argue with her?

Yet there is no evidence of sexual arousal in the victim and the scratches on the woman appear to have been self-inflicted. She certainly could not have fired the gun the way she explained it to the police. Was she really attacked or is she only faking? And if she is faking, why?

Step forward Californian lawyer Christopher Paget, world renowned as the man who uncovered a Watergate-style scandal a few years back and forced the resignation of America's President. Paget is the man to defend the woman on a murder charge, if anyone is. He knows her very well, after all. They enjoyed a brief fling 15 years ago and have a son to prove it.

But is the mother of his child really to blame for the killing, and if so, how much to blame? The degree of guilt is impossible to judge in a case like this. It is a subject that has been extensively aired in real life recently and the author makes no secret of his debt to the Kennedy Smith trial and the Anita Hill-Clarence Thomas sexual harassment case. He tells a good story, though without the dramatic flair of a Scott Turow. But it should make a splendidly slick movie in due course.

The victim in Degree of Guilt was America's most famous living novelist. In Hands On, a second novel by Andrew Rosenheim, the victim is America's most famous living poet, a four-times married old reprobate who is the father of computer whizz kid Robert Madison. Robert has abandoned a professorship at Harvard for a job at Oxford, where he is the Artificial Intelligence guru for an electronics company, charged specifically with the task of teaching a computer to write.

The author is obviously talking from the heart because he himself came to Oxford as a Rhodes scholar and stayed to become Director of Electronic Publishing at OUP. He is as well placed as anyone to make a computer write, one day. Meantime he is indulging in a little wish fulfilment with a blackly comic tale of computer programming and corporate life in the electronics world.

It is an engaging piece of work. Madison eventually persuades the computer to write poetry indistinguishable from his father's, thus revenging himself for the old boy's bad behaviour during his childhood. One could name a few novelists in the same spirit, whose stuff has clearly been written by computers for years . . .

Happily, Jay Parini would not be among them. His historical novel The Last Station won a small prize in America a couple of years ago and deserves to succeed here as well. It tells the story in six different voices of Leo Tolstoy's last days, as seen by the various factions warring round him - his wife, daughter, doctor, secretary, chief disciple and hanger-on - and last, but not least, as seen by Tolstoy himself.

Parini has used historical records whenever possible, but where there are holes in the narrative he has cheerfully plugged the gap himself. The result is a very plausible study of Tolstoy's terminal decline, beginning with unhappy days at Yasnaya Polyana and continuing via his sudden departure from home to his last illness and death at Astapovo station, surrounded by more than a hundred journalists from around the world. The story is perfectly well known, but Parini manages to bring it alive again, as if the reader is there, rather than simply reading about it, which is a much harder trick than it looks.

David Dabydeen's Disappearance is an allegory of England in decay, as seen through the eyes of a young Guyanan working on an engineering project near Hastings. The Guyanan's job is to shore up a cliff and so prevent a village from crumbling into the sea. He makes friends with his landlady and learns much from her about the failings and inadequacies of his adopted land.

It is all so very different from the mother country he had admired from afar, as a youngster in the Caribbean. Even the sea wall is suspect, after he has completed it. The author's message is uncompromising, but he writes well, even lyrically. Guyanan himself, he has chosen to make his own home in England, so perhaps the country is not quite as hopeless as he depicts it here.

GB United Kingdom, EC P2731 Book Publishing TECH Products P2731 The Financial Times London Page XI 879
Books: Master of patriotic verse - This biography reinstates the true value of Tennyson's poetry Publication 930313FT Processed by FT 930313 By ANTHONY CURTIS

TENNYSON by Peter Levi Macmillan Pounds 20, 370 pages

SLIGHTLY more than 100 years ago, in October 1892, Tennyson had the biggest, most public funeral of any English poet - a spectacular ceremonial in Westminster Abbey with survivors of the Light Brigade lining the aisle. It was an appropriate final tribute to a poet whose work had penetrated every literate household in the land. What other poem has ever become so inextricably interwoven with history and national pride as The Charge of the Light Brigade?

When the Duke of Wellington died, Tennyson (who had been appointed Poet Laureate two years earlier in 1850 on the death of Wordsworth) wrote: 'Bury the Great Duke/ With an empire's lamentation,/ Let us bury the Great Duke/ To the noise of the mourning of a mighty nation . . .' It was an Ode in which Tennyson gave robust patriotic expression to the Victorian moral outlook in the famous couplet: 'Not once or twice in our fair island-story,/ The path of duty was the way to glory . . .'

Most of the time today we apprehend poetry, when we bother with it at all, privately, almost secretly, through the eyes, listening to the sound of the words only with the mind's ear. That is quite different from the way Tennyson and his contemporaries listened to poetry. For them it was read aloud regularly as part of general and parlour entertainment. Tennyson's contemporary Browning perfected the notion of a poem as a histrionic monologue. Even a poem-sequence stemming from a deep sense of personal loss like In Memoriam was conceived in terms of public utterance.

Peter Levi, a poet himself, is highly sensitive to this aspect of Tennyson. and reminds us of it when commenting on the poems. His biography of the poet comes in the wake of several previous ones in recent years, such as Robert Bernard Martin's Tennyson: The Unquiet Heart (1983) and Michael Thorn's Tennyson (reviewed here last year). There have also been published during the past decade three volumes of The Letters of Alfred Tennyson and in 1969 there was a truly complete edition of the poetry with copious biographical notes on each poem edited by Christopher Ricks.

The basic facts, then, are not in dispute and Levi has no tremendous revelations to unfold. His fresh light arises from his more erudite discoveries - a copy of the Post Homerica of Quintus of Smyrna inscribed in Greek (by Arthur Hallam he surmises) to Tennyson and providing him with the source for the sequel to Oenone. We read once more of the poet's upbringing as the fourth son of a drunken Lincolnshire rector, and of his attendance at Louth Grammar School and Trinity College, Cambridge, where he was one of the earliest members of the Apostles debating society.

He went down from the university with the Chancellor's Gold Medal for his poem Timbuctoo but without a degree. He made his poetic debut in 1827 in the slim volume, Poems by Two Brothers, a joint venture with his sibling Charles. Then in 1830 came Poems, Chiefly Lyrical of which he was the sole author. It was cruelly savaged by that notorious literary hatchet-man of the period JW Croker - 'Croaker', Levi aptly calls him - in the Quarterly Review. And as if this was not enough misery, a tragic blow followed when an urgent letter from abroad informed Tennyson that his great Cambridge friend Hallam (who was engaged to be married to his sister Emily) had died of apoplexy in Vienna.

Levi discounts the view taken afterwards by Tennyson that, had his other friends not supported him at this time of crisis with their praise of his work, he would have given up poetry altogether. In the event he began In Memoriam soon after his friend's death and he continued to draft poems treating of the legends of Camelot. Levi dates the emergence of Tennyson as a great poet to this period.

For those of us who belong to a generation whose taste for Tennyson was systematically poisoned, first by reading TS Eliot's complaint that he 'ruminated' tediously, and then by the strictures of FR Leavis, the deeply-felt responses in this book are a pleasingly corrective experience. Levi rates the song 'Tears, idle tears' as a 'sad and perfect lyric'. That was the very poem Leavis made the spearhead of his attack, contrasting it, much to its disadvantage, with a more poised poem of regret by DH Lawrence.

But Levi discriminates too. He suggests that The Idylls of the King are fatally flawed and most of them should be read quickly if at all. He feels that the best part of The Princess is the Prologue, with its description of an open day in summer in the grounds of Park House for the members of the Maidstone Mechanics Institute. (The funfair scenes in Ken Russell's recent and notorious production of Gilbert and Sullivan's Princess Ida were ultimately derived from this instance of Tennyson's descriptive skill).

The plays Levi regards as more or less unreadable and certainly unperformable; but he thinks that Maud (severely panned by George Eliot when it first appeared) is 'a powerfully impressive poem'. He finds in it 'a very full and fully sexual expression of love, which as a younger and unmarried man Tennyson could not have written (there he differs from Tolstoy)'. It is these bizarre throwaway comparisons that have such a salutary effect on the reader; like the book as a whole, they send one straight back to the poems.

GB United Kingdom, EC P2731 Book Publishing TECH Products P2731 The Financial Times London Page X 962
Books: In search of Olympia Publication 930313FT Processed by FT 930313 By JACKIE WULLSCHLAGER

ALIAS OLYMPIA by Eunice Lipton Thames & Hudson Pounds 12.95, 181 pages

FOR EVERY one art lover who knows her name, thousands can instantly recognise the face and body of Victorine Meurent. She was the bold model with the tight little frame and steady, daring gaze whose depiction in Manet's Olympia and Le Dejeuner sur l'Herbe revolutionised European nude painting and outraged the 19th century art world. Contemporaries called Meurent 'a female gorilla' and marched through the Salon with sticks and umbrellas to attack her portrait. Now she is something of a feminist heroine, the plucky naked girl who stares out of the canvas defying male expectations of submission, the star of a sexy fete champetre who refuses her part in the erotic script.

Who was the woman behind the image? Alias Olympia is subtitled 'a woman's search for Manet's notorious model and her own desire', and began as Eunice Lipton's attempt to find out. Lipton is a distinguished art historian, but she soon discovered that history had buried Meurent as a typical model - prostitute, alcoholic, loser - nicknamed 'the Shrimp'. Meurent is known to have painted as well as modelled, but records, documents and interest in her were negligible. There seemed no book to be written.

But Meurent became for Lipton an obsession, and scholarly research a detective trail of blazing personal urgency. With wit and perception, Lipton describes how she lived, breathed and dreamt Meurent, how lacklustre archivists and Parisian alleys drove her to paranoia, how she came to see the Parisian model born a hundred years before her as an alter ego who shared her own problems with family, lovers, feminism and the art establishment. Biography merges into autobiography, art history into a novel as she creates her own idealised Meurent: a defiant lesbian artist who whizzes about Paris, sells her paintings, drinks alone in bars, does her own thing.

The result is a clever, unorthodox, enthralling book which combines criticism and fiction in elegant symbiosis. Lipton's overarching theme is the century-old treatment of women as objects in art and culture, and the way this continues to condition how women see themselves. Here Meurent is the breakthrough, 'resisting centuries of admonition to ingratiate herself', consigned to (patriarchal) historical oblivion as punishment. Manet, who after all created the radical image, gets no credit.

But you do not have to agree with Lipton to enjoy her story. Her format allows a plethora of juicy digressions - sharp words on the pampered, male-bonded lives of Berthe Morisot and Mary Cassatt, for example, snap into an analysis of why Renoir and Manet and Monet endlessly depicted one other painting, but never drew the women artists working. Lipton has inspired hunches, admissions of uncertain assumptions or dead-end routes which a narrower scholarly work would lose. Most dazzling is her confidence to turn the tables on herself and unearth research that shows how pathetically an ageing, down-and-out Meurent traded on the Manet connection: a final joke in which Meurent refuses to play her author's game as trenchantly as she declined to satisfy the 19th century viewer.

Alias Olympia joins a small, impressive genre of post-modern criticism - Richard Holmes' Footsteps, Cecily Mackworth's offbeat account of Freud in Lucy's Nose last year - where the academic search is the story, where loose ends are not tied up and uncertainties are accepted and bring life to the narrative. It is cultural history at once learned, provocative, original and unstuffy.

GB United Kingdom, EC P2731 Book Publishing TECH Products P2731 The Financial Times London Page X 604
Books: Much Whiggery pokery - JH Plumb admires the political skills of a remarkable man Publication 930313FT Processed by FT 930313 By JH PLUMB

DUNCANNON: REFORMER AND RECONCILER 1782-1847 by Dorothy Howell-Thomas Michael Russell Pounds 19.95, 400 pages

THIS IS a very pleasant, quiet book. It does not flash or thunder or try to impose an ideologicai interpretation or go in for psychoanalytical theory. In the hands of a professional scholar, it would probably have been three times as long, burdened with five times as many footnotes and dragged behind it a bibliography of 20 pages. The result would have been less readable and probably less wise.

Sometimes the book skirts on thin ice when the author ventures into European problems or Britain's economic development, but the ice never cracks. Apart from a few weaknesses, it is an excellent book, in its quiet way seductively readable and illuminating. Reading it is like eating a dish of well-buttered brown bread, very nourishing, very sustaining, and very rare these days.

It is about John Ponsonby, who became Viscount Duncannon as a schoolboy and succeeded as 4th Earl of Bessbrough a few years before he died in 1847. The old Ponsonby estates were in Ireland, near Kilkenny, but the family rarely went there for his mother was sister to Georgiana, Duchess of Devonshire, (and a Spencer) and preferred their house at Roehampton.

Indeed, Duncannon was born into a very large whig network which took Charles James Fox as its hero and leader: a part, therefore, of that vast whig cousinage based principally on London but which also spent a lot of time visiting each other. The core of his circle were the Cavendishs, Spencers, Fitzwilliams, Lambtons, Howards and Lambs. Duncannon was related to most of them.

It was a dissolute society enjoying the kind of sexual freedom which people enjoy today but with its own taboos (you did not sleep with marriageable girls of good family) and shibboleths (male infidelities were mere 'scrapes' and openly gossiped about). The tone was set by the Devonshires: the Duke brought up his bastards in the same nursery as his legitimate children. His mistress, Lady Elizabeth Foster, was a close and loving friend of his wife.

Their more dangerous obsessions were drink and gambling - in the case of Fox and the Duchess of Devonshire almost ruinously so. Duncannon's mother, whose lover, Granville Leveson-Gower, was 12 years younger than herself, bore him two girls but they were brought up apart from the family. She was almost as extravagant as her sister, Georgiana. To put it mildly, the whig cousinage was randy, extravagant, alcoholic and arrogant.

One of the fascinations of this book is to see how the scions of this group adjusted to the vast political and social crises which ravaged Britain between 1810-50. Their world was toppling and changing as fast as our own has done this last few years. Duncannon, in his somewhat subfusc yet debonair manner, was remarkably effective in guiding Britain through those tempestuous times.

He made three great contributions to British political and social life. He strengthened the office of Chief Whip; cleaned up the morass of antiquated administration that was responsible for public and Royal buildings; and kept Britain afloat and almost at peace in Ireland during the turmoil caused by the Union.

His skills were a capacity for business, for the quick mastery of a complex brief which is the hallmark of 'a man of business' in politics. As Chief Whip he kept the whig opposition coherent during the long premiership of Lord Liverpool, creating an umbrella that sheltered and kept together old-fashioned whigs like Fitzwilliam and red-hot radicals like Alderman Wood. His attention to detail was prodigious and he obviously possessed the most important yet elusive of political qualities - charm. He was always relaxed, cool and courteous, yet rock-like in basic principles derived from Fox.

This biography is easy and enjoyable to read, not profound in itself but driving one to brood on the complexities of politics and the art of governing in a changing world where the future was hard to forecast. Some of our cabinet could read it with advantage. Dorothy Howell-Thomas is to be congratulated for resurrecting a remarkable man not only important in his day but significant to posterity.

GB United Kingdom, EC P2731 Book Publishing TECH Products P2731 The Financial Times London Page X 730
Books: Questions of imperialism Publication 930313FT Processed by FT 930313 By ANTHONY VERRIER

THANGLIENA: A LIFE OF T H LEWIN by John Whitehead Kiscadale Publications Pounds 25, 437 pages

'WHO ARE these Victorians? By what mark are we to know them? What creed, what doctrine, what institution was there among them which was not at some time or other debated or assailed?'

THUS GM Young in his Victorian England: Portrait of an Age. We will find a partial answer to the question in this excellent biography. But the answer will be disconcerting. Much of the value of Thangliena lies in the fact that the biographer, ostensibly narrating the life of a typical 'Guardian' in the old Anglo-Indian mould, reveals the inner man.

Lewin was a Victorian imperialist; born in 1839, he died in 1916. He was characteristic of his age and class in his energy, range of interests and accomplishments, his undoubted devotion to the Lushai Hill Tracts tribesmen he first vanquished and then ruled paternally. But Lewin was consumed nevertheless by hatred of 'this beastly country', and burdened with longing for an English arcadia where he could gain peace of mind.

Lewin did not find that peace; even in retirement he was reduced to depressed resignation, solace in music and tobacco. Unfeeling parents, unhappy schooldays, and the horrors of the Mutiny through which he fought aged 18, may have shaped his temperament into a pattern whereby the surface was all action and decision, the background dark and obscure. Such a psychological evolution was not uncommon with imperialists, who devoted much of their lives to unselfish service yet could never find true fulfilment therein. These Victorians, who brought a kind of law and order to the world - even if a punitive expedition always remained to back them up - were conscious to a degree which perhaps we fail to appreciate today that 'the day's work', as Kipling expressed it, begged more questions than it settled.

James Abbott amongst the Hazara, Robert Sandeman amidst his Baluchis, faced the problem which confronted Lewin on the distant frontier between Assam and Burma, one which John Whitehead describes so well. He narrates Lewin's experience in the 1860s and 1870s of nearly a decade of endeavour in a destructive climate. Did the Lushai and Chin Hill tribesman accept 'pacification'? Up to a point. Did these tribes want schools and telegraph? Yes, very much up to a point. Was Lewin's zealous work interpreting and transcribing their dialects appreciated? Yes, and it is here that we can see why these men of the wild green earth called Lewin 'Thangliena', the 'Lushai's first white friend'.

Lewin was so honoured - much as a tribe in Iraq called itself the Beit Mackenzie, 'Mackenzie's people', in memory of some otherwise forgotten son of empire - not because he subdued, ruled and succoured them, but because he identified himself with them, living as a man amongst men rather than as a ruler amongst ruled. He did so in the hope of answering that nagging Victorian question: for what purpose am I here, in wilderness or by the Surrey pine to which, his health broken, he rather prematurely retired. Answer came there not; doubts multiplied, about religion ,about women about himself.

Yet Lewin left his mark, and in an imperial context after all. The Lushai and Chin tribes were courageous guerrilla warriors in the second world war, and succumbed to no Japanese lures. One hopes that, in some Victorian nirvana, Lewin had his question answered at last.

GB United Kingdom, EC P2731 Book Publishing TECH Products P2731 The Financial Times London Page X 601
Books: Jaw, jaw about war, war Publication 930313FT Processed by FT 930313 By ANDREW ADONIS

COLLISION OF EMPIRES: BRITAIN INTHREE WORLD WARS 1793-1945 by AD Harvey Hambledon Press Pounds 45, 784 pages

COLLISION of Empires is not one book but three. Its sections - on the wars against revolutionary and Napoleonic France, and the First and the Second World Wars - are separate works. They all just happen to be about long wars since 1793 in which Britain was involved.

The book lacks two of the characteristics necessary for a contemporary historical bestseller: copious illustrations and a price under Pounds 25. But it has the rest. It is very long, very readable, very detailed, crammed with footnotes evidencing colossal research; and it purports to address a 'big question': how did Britain's experience of the three wars compare?

Mr Harvey barely begins to answer that question, but his lucidity and erudition are not to be gainsaid. As an account of the inter-connections between politics, diplomacy and military strategy in three European wars since 1793, his book is masterly, full of insight and sympathy. The minutiae - pages, for instance, on the origins of the Machine Gun Corps and why Sir John French was not sacked earlier as commander of the British Expeditionary Force - can be oppressive, but Harvey's grasp of constitutions, dynasties, strategy, technology, national accounts, and more besides, is remarkable, dazzling professional and bedtime readers alike.

Harvey has an eye for the vivid quotation and cutting aside. After a survey of the chronic incompetence of pre-1914 Habsburg administration, he remarks, 'only an Austrian archduke could have fallen victim to a second assassination attempt in one day.' Tannenberg, Ypres, Verdun, Caporetto, the Somme, 'toll the passing of an age that was unprepared for its own demise and died hard.' Stalingrad was 'only the nemesis of a consistently hubristic style of campaigning.'

The hubris, and the insulation of military and political elites from the horrors of all three wars, are deftly intertwined with passages on the technicalities of tanks, gas, average earnings and high-definition radar. 'Generally,' Harvey opens one chapter, 'the military favoured new or improved ways of killing people.' Like the fusilier who wrote back from the trenches of the Somme, 'If hell is any worse I would not like to go to it'; or the First World War air squadrons in which the mention of casualties or enquiries about colleagues missing at mealtimes were forbidden; or the hundreds of German youths whose names are inscribed on gravestones in Bergfriedhof, Heidelberg, 'the gazetteer of Nazi advance, retirement and collapse.'

But when it comes to the 'big question', one looks in vain for an answer. There is no systematic comparison of the three wars, even by way of conclusion. Indeed, it is not clear why the war against revolutionary and Napoleonic France is included at all. A three-page introduction says it is on the grounds that 'in a sense, at least as regards Britain, it belongs to the era of 20th-century warfare', while 'the assumptions behind the decision for war in 1914 and 1939 will be more clearly understood if the earlier war is taken into account.'

In a sense, yes; in many others, no. As for the assumptions, the evolution of post-unification Germany, the Irish question, and the exigencies of late-Victorian and Edwardian imperialism would add more clarity to the decision for war in 1914 than pages on George III as a national symbol, or paper roubles in circulation in the 1790s. For a book ostensibly about empires, there is remarkably little about empire, either at the theoretical level or by way of description of the imperial dimensions to the three conflicts under examination.

Much of the book is not even loosely related to the theme of Britain in three world wars. Calling them 'parallel cases' and suggesting that they might give us a 'clearer idea' of British motivation does little to make relevant lengthy sections on why Turkey, Italy, Greece, Portugal and the US did or did not declare war in 1914. Ditto the fascinating discussion of the varieties of fascism, and of 'isolated ideologues' of similar ilk in Belgium and France. 'Aspects of the three wars which tickle the author's fancy' would be a more apt sub-title.

Only in the final paragraph is there a hint of an over-view, when Harvey half-heartedly invokes a cycle from 'national wars fought without national leadership, as in 1793-1815' to 'wars fought by national leaders determined to survive in their bunkers while the nation as such perishes in the nuclear holocaust outside.' But who was 'the nation' in 1793, and how was it able to go to war for 22 years without its 'national leaders'? True, Harvey is somewhat confused about the identity of the leaders. At one point William Pitt is 'a royal servant surviving by royal favour'; later he is 'no royal stooge' and only 'ostensibly' George III's servant. But whether George III, Pitt or Wellington were at the helm, it would be intriguing to know how the French wars are supposed to have been fought without them.

To be fair, Harvey gives a response to such carping in the concluding sentence. 'We will know better,' he informs us, 'where we are going when we have got there, and a book like this one cannot be more than an attempt at an interim report.' If the interim report takes 756 pages, keep a retirement or two free for the final solution.

GB United Kingdom, EC P2731 Book Publishing TECH Products P2731 The Financial Times London Page X 926
Finance and the Family: New trust offers 8.5% yield Publication 930313FT Processed by FT 930313 By PHILIP COGGAN

A NEW investment trust offering a yield of 8.5 per cent will be launched later this month by Grahams Rintoul, a small fund management group. The High Income trust will invest in convertible stocks - fixed-interest securities which can be converted into ordinary shares.

The theory behind convertible investing is that the high yield gives a decent income and, if share prices rise sharply, there is a chance of extra profit by exercising the conversion option.

The theory has not worked too well in recent years, though. The average convertible unit trust rose just 19.4 per cent (offer-to-bid with income re-invested) over the five years to March 1, according to Finstat.

High Income's manager, Nick Coombes, says that unit trusts specialising in the area can be hit by redemptions, which require them to sell their most liquid - and often their most attractive - stocks. Furthermore, many of the convertibles issued in the mid-1980s were by companies on acquisition sprees; many deals turned sour late in the decade and the early 1990s.

Coombes says there are still plenty of good stocks available in the market, such as Tarmac, Amec, Rank, BAe, BICC and Hanson. His main aim is to ensure that the trust can continue to make its dividend payments, which will be paid quarterly. If that is achieved, he says, the capital will look after itself.

The trust's capital structure is that 70 per cent will be in ordinary shares with the rest in zero dividend preference shares, which will be on a redemption yield of 8.5 per cent. The build-up of the zero's value will be charged against the trust's income account, which has tax advantages. But, as with other split capital trusts, if the manager fails to perform, the demands of the zero will eat into the value of the ordinary shares.

The chairman of the trust will be John Short, the former manager of BZW Convertible trust, the only other investment trust in this field. It is top of the UK General sector over three years, with a rise of 64.1 per cent, and its shares stand at a premium to asset value. High Income trust will have a restricted six-year life, which should limit the danger that the shares will fall to a discount.

Under the present rules, the trust does not qualify for personal equity plan status. So, income-seeking investors might consider it as an add-on to a Pep, such as those on offer from Cazenove, Fidelity, Foreign & Colonial or M&G.

The minimum investment will be Pounds 1,000; annual management charge will be 0.8 per cent; and issue expenses will be no more than 4 per cent. The broker is the London-based Greig Middleton. The launch is scheduled for March 25, so details may alter if there is a change in economic and financial conditions before then.

Grahams Rintoul Investment Trust GB United Kingdom, EC P672 Investment Offices TECH Products P672 The Financial Times London Page VIII 512
Finance and the Family: Medical insurers curb premium rises Publication 930313FT Processed by FT 930313 By JOHN AUTHERS

HEALTH insurers have begun to lance the boil of medical cost-inflation which has bedevilled the industry. The result is a lower rate of increase in premiums this year - an encouraging sign after a period when a combination of factors seemed to be pushing private health insurance out of the reach of many people.

Insurers reassess their premiums twice a year, although customers pay only once. The British United Provident Association (Bupa), the largest medical insurer, announced increases of 14.7 per cent for the year for individual subscribers, but those renewing company schemes will see an increase of only 7.2 per cent. These figures followed increases the previous year of 23 per cent.

Norwich Union Healthcare has increased its premiums by 10 per cent for the year, a figure equalled, on average, by Western Provident Association. This figure is higher for the elderly - pensioners on WPA health insurance schemes which qualify for tax relief face an increase of 25 per cent this year, following a 36 per cent rise last year.

But these rises are only averages. On some policies, insurers have frozen premiums, or even decreased them.

Private Patients Plan has announced that premiums will drop by 5 per cent in July. When combined with the increase announced earlier in the year, that means premiums for around 250,000 policy-holders, will reduce or stay the same.

Reductions will fall mostly on budget plans - for example, a family headed by a 50-year-old would see a reduction in monthly premiums from Pounds 41.40 to Pounds 38.20.

What lies behind the increases? Lawrence Hager, of Noble Lowndes, identifies several factors which together cause the trend to higher premiums. These include:

Medical inflation - which was highlighted last year when the Monopolies and Mergers Commission investigated consultants' prices.

Technology.

Cost-shifting from the public sector to the private.

Utilisation - the amount of times each policyholder makes a claim.

Anti-selection - the phenomenon by which those who realise that they are likely to need private medical treatment are more likely to take out the insurance.

In the US last year, these combined to force an increase of 20.5 per cent for 1993.

In the UK, medical inflation - as measured by the cost of each claim to the companies - had been allowed to get out of control, but the insurers now seem to be putting a lid on it. According to Arthur Large, chief executive of Bupa, costs per claim increased by only 2.2 per cent last year, following 7 per cent in 1991. This is barely ahead of the rate of inflation.

But rising premiums encourage further anti-selection (as those who consider themselves fit decide that insurance is no longer worth the expense), and also increase utilisation of the service.

According to Large, Bupa's policy-holders claimed 7 per cent more often last year than they did the year before. But members of corporate schemes - less prone to anti-selection - actually claimed on their insurance 1.7 per cent less than in the year before, and Bupa's company premiums were not raised at the beginning of this year.

So, the years of cost-inflation may bring consumers some benefits. Insurers have been forced to offer a wider range of products, allowing consumers to avoid paying for cover for ailments which would be just as well treated by the NHS.

WPA, for instance, now has 15 different products with different levels of cover. A family headed by a 50-year-old could pay as much as Pounds 1,442.90 a year, or as little as Pounds 369, for its insurance.

According to Julian Stainton, of WPA, the latter only covers 'quality of life' ailments (such as varicose veins), for which NHS waiting lists are justifiably longest, and does not cover acute illnesses, for which the NHS is usually speedy.

Watch out for further changes to premium structures. Medical insurance has grown much more expensive, but at last the insurers have been forced to keep an eye on what doctors are spending and to address the needs of the consumer.

GB United Kingdom, EC P6321 Accident and Health Insurance P6324 Hospital and Medical Service Plans COSTS Product prices P6321 P6324 The Financial Times London Page VIII 715
Finance and the Family: Top annuity rates Publication 930313FT Processed by FT 930313

THOSE WHO feel they need not worry about inflation now it has fallen to 1.7 per cent should take a look at the annuity table. All the annuities are 'compulsory purchase' - the kind bought with a pension fund on retirement.

You can buy an annuity which grows by 3 per cent annually, or one which increases by the rise in the retail price index each year. Note that the amounts paid out initially for the 3 per cent annuity are much higher than for the RPI-linked annuity. That means actuaries expect average inflation to be considerably higher than 3 per cent over the lifetime of their annuitants.

RNPF Nurses, which appears in several lists, offers annuities only to members of the medical professions. All figures were supplied by The Annuity Bureau, 11-12 Hanover Square, London, W1R 9HD, tel. 071-495 1495.

------------------------------------------------------------------------ COMPULSORY PURCHASE ANNUITY RATES ------------------------------------------------------------------------ Index-linked compulsory purchase annuity ------------------------------------------------------------------------ Male age 65 Annuity Female age 60 Annuity Sun Alliance pounds8840.04 Equitable Life pounds6404.00 Equitable Life pounds8789.04 Sun Alliance pounds6296.04 Abbey Life pounds8308.08 Sun Life pounds6083.40 ------------------------------------------------------------------------ Annuity escalating by 3 per cent annually ------------------------------------------------------------------------ Male age 65 Annuity Female age 60 Annuity RNPF Nurses pounds10419.00 RNPF Nurses pounds7949.00 Equitable Life pounds10274.04 Equitable Life pounds7857.96 Canada Life pounds10179.96 Canada Life pounds7647.24 ------------------------------------------------------------------------ Compulsory purchase level annuity ------------------------------------------------------------------------ Male 65 Annuity Female 60 Annuity Equitable Life pounds12615.00 Equitable Life pounds10205.04 RNPF Nurses pounds12608.00 RNPF Nurses pounds10202.00 Canada Life pounds12370.92 Canada Life pounds9961.20 ------------------------------------------------------------------------ Joint life annuity (male age 65/female age 60) ------------------------------------------------------------------------ Escalating by 3% Annuity Remaining level Annuity Equitable Life pounds7347.96 Equitable Life pounds9632.04 RNPF Nurses pounds7333.00 RNPF Nurses pounds9592.00 Canada Life pounds7186.44 Canada Life pounds9392.16 ------------------------------------------------------------------------ All payments are gross, monthly in advance, and without guarantee. Purchase price pounds100,000. ------------------------------------------------------------------------

GB United Kingdom, EC P6371 Pension, Health, and Welfare Funds CMMT Comment & Analysis P6371 The Financial Times London Page VIII 326
Briefcase, Q&A: Wind-up worry Publication 930313FT Processed by FT 930313

AFTER SELLING a business in 1970, my wife and I were left with a company which had previously run the business. Since that time, it has been reorganised by the tax authorities as an investment company - my wife and I being the sole shareholders.

In the beginning, the value of the investments held amounted to very little, but this has grown gradually over the years to Pounds 20,000. There are no debts and no activity other than the payment of a few hundred pounds for secretarial services to my wife. But accounting charges amount to around Pounds 400 per year, which seems a waste of money.

Because of our age - we are both 70- plus - we wish to liquidate the company but have been quoted Pounds 2,000-plus for this. What should we do?

It might be preferable to take a different course from formal winding-up: namely, to have the company struck off the register of companies as having ceased to trade. Briefly, you would pay off any creditors and all taxes and distribute the assets as dividend. You then prepare a balance sheet, which need not be audited if the company has not traded since the last accounting date.

The directors should pass a resolution to take personal responsibility for any unquantified liabilities (accountancy fees) plus a resolution that the company has ceased to trade, is no longer required, and that the companies' registrar be asked to strike it off the register. Signed copies of the resolutions and balance sheet are then sent to the registrar with a note of the company's tax office and reference number.

If the inspector of taxes responds to the registrar's enquiry and confirms that all tax liabilities have been settled, the registrar will normally proceed to strike off the company. This will involve considerably less cost than a winding-up.

No legal responsibility can be accepted by the Financial Times for the answers given in these columns. All inquiries will be answered by post as soon as possible.

GB United Kingdom, EC P672 Investment Offices CMMT Comment & Analysis P672 The Financial Times London Page VIII 363
Briefcase, Q&A: Hit by a horse Publication 930313FT Processed by FT 930313

A RUNAWAY horse ran into our car on a road at midnight. There is no dispute that the animal was to blame and the car was a write-off, although neither my wife or myself suffered serious injuries.

My insurance company has paid me for the car but the other side, although admitting the horse was responsible, is refusing to meet such additional direct costs as hospital and hotel accommodation.

Your remedy here would lie in sueing the owner of the horse for the loss which you have incurred and which the insurers are not prepared to meet. This might present difficulties if the horse was not being ridden and had escaped from private land; but section 8 of the Animals Act 1971 makes it possible to establish negligence in keeping the horse in such circumstances that it was able to get into the road in the way in which it did. You would be wise to consult a solicitor.

No legal responsibility can be accepted by the Financial Times for the answers given in these columns. All inquiries will be answered by post as soon as possible.

GB United Kingdom, EC P6331 Fire, Marine, and Casualty Insurance P9229 Public Order and Safety, NEC CMMT Comment & Analysis P6331 P9229 The Financial Times London Page VIII 226
Finance and the Family: NS to get an arbiter Publication 930313FT Processed by FT 930313 By BARBARA ELLIS

A NEW recruit is to join the ranks of ombudsmen and arbitrators handling complaints about financial services. From April 1, the newcomer - styled an 'independent adjudicator' - will determine disputes between the department for National Savings and its investors.

The name of the adjudicator - picked from a field of 50 legally-qualified applicants - will be announced soon by the Treasury. The job is part-time and the appointee will take over the task from the registrar of friendly societies.

Investors might wonder how an adjudicator appointed, paid-for and provided with office space by National Savings' overlord, the Treasury, can be described as independent. But although NS has around 30m investors, very few of those involved in disputes are likely to come into contact with the adjudicator - or even to learn that such an official exists.

Unlike the banks, most of which display posters or leaflets about their ombudsman, NS has no plans to make any information about the adjudicator available in post offices. And, apparently, it intends not to reveal the possibility of adjudication until very late in a dispute.

An NS spokesman said this week that if a dispute reached an impasse after 'protracted correspondence,' the department would then tell the investor the matter could be referred to the adjudicator.

The annual report of the registrar of friendly societies shows that in the year to September 1992, he dealt with 18 NS disputes: 10 over NS savings bank deposits; six over savings certificates; and two over stocks, bonds or premium bonds. Third-party title disputes were the largest category, accounting for 11 cases, followed by claims for additional interest (three cases).

GB United Kingdom, EC P6035 Federal Savings Institutions P9641 Regulation of Agricultural Marketing TECH Standards TECH Services P6035 P9641 The Financial Times London Page VII 315
Finance and the Family: Mips and Fips, options for Lamont to ponder - Diary of a Private Investor Publication 930313FT Processed by FT 930313 By KEVIN GOLDSTEIN-JACKSON

CHANCELLORS of the exchequer have created a variety of new investment vehicles in recent years, such as personal equity plans (Peps) and tax-exempt special savings accounts (Tessas), while abolishing a number of low-yielding taxes - such as the excise duty on matches and mechanical lighters.

Will chancellor Norman Lamont's March 16 Budget follow that pattern? If so, as a private investor I hope he will introduce two new investment vehicles - Mips and Fips - to take the place of the business expansion scheme (BES) which ends on December 31.

Given the prime minister's recent statements on the need to encourage manufacturing industries, then Mips (manufacturing investment plans) might have some appeal. Investors would receive tax relief on their investment in newly-issued shares in start-up and existing small businesses which used the funds to develop or expand their manufacturing capabilities.

Mips would be restricted to companies with assets less than, say, Pounds 10m. Subsidiaries, or companies associated with major companies, would not be eligible. The tax relief terms could be somewhat similar to those that apply to BES investors. There would be no limit on the total amount each company could raise by this method of funding.

Fips (film investment plans) also would provide BES-style tax relief for investors who put money into encouraging and expanding the British movie industry. Each production, regardless of the size of its budget, would be open to private investors. Ideally, this would encourage production of more films with mass appeal (as opposed to art house movies, which might receive subsidies from the new national lottery). With luck, such films would lead not only to a steady stream of income from foreign sales but also act as world-wide promoters of British talent. Films with excessive violence would not qualify for Fips.

The ideal tax for abolition in the Budget is stamp duty on share transactions. If the chancellor feels he cannot get rid of this iniquitous tax completely, then at least it should be abolished for private investors, leaving institutions to continue paying it.

Stamp duty on house purchases could also be abolished. If this was accompanied by an announcement that mortgage interest tax relief was being phased out over, say, the next 10 years, then this would help to lubricate the housing market and, in the long term, save the government huge sums of money. It could also help shares in house-building companies.

There has been much press comment about the government's need to borrow yet more money to fund its spending plans; and it has been suggested that the rules for Peps should be amended to allow gilts to qualify for inclusion. But I would much prefer that Peps were abolished. As well as an increase in capital gains tax allowances, private investors should be given roll-over relief instead.

Already, some forms of institutional investment benefit effectively from such relief; unit and investment trusts pay no CGT when share-holdings are bought and sold. The individual taxpayer becomes liable for such tax when the units or investment trust shares are cashed in. A private investor should be able to benefit personally from roll-over relief on his individual share transactions. So long as the proceeds from a sale are used to fund another investment (shares or gilts), then no tax should be levied.

The chancellor should also make it much easier for people to organise their own personal pension schemes without the need for fund managers and trustees. They should be allowed to set aside part of their income for pension purposes and invest it how they wish: if they lose it all, hard luck] But at least they would have direct control over their own destiny (plus the tax advantages).

Fund managers in Britain have control over an uncomfortably large proportion of companies and industry. The time is long overdue to encourage and promote much more direct investment by private individuals - particularly as they are more likely to complain loudly in cases of pathetic management than some institutions.

There are a number of companies that may suffer from the Budget. It has been suggested that the chancellor could extend VAT to domestic fuel and power - perhaps at 5 per cent initially - in order to help fund the government's deficit and demonstrate a 'green' policy. If that happens, shares in all utility companies could be hit.

Fortunately, I hold only a modest number in Southern Electric (so I can complain at the next annual general meeting about the poor power supply to my home). But no such levy should be applied to Scottish Hydro Electric, which provides the 'cleanest' power in the UK.

In his Budget last year, the chancellor increased tax on leaded petrol at a higher rate than unleaded, and said this continued the government's 'long-standing and successful policy' of encouraging people to use unleaded fuel. I expect he will widen the gap even more this year.

The Inland Revenue has completed a review of company car tax and the chancellor is expected to announce further increases in this area. Suppliers of expensive vehicles may suffer as these could well attract higher tax, while the benefit of company car insurance could be affected similarly.

Whatever the chancellor announces, I hope it is accompanied by a statement showing how the costs of government and administration are being reduced.

GB United Kingdom, EC P6282 Investment Advice TECH Products P6282 The Financial Times London Page VII 929
Finance and the Family: Credit card bills blunder Publication 930313FT Processed by FT 930313 By ANDREW JACK

ANYONE with a National Westminster Bank Worldwide Fund for Nature Visa affinity credit card should handle their statements from the start of the year with extreme caution - and they would do well to check the figures carefully.

NatWest admitted last week that thousands of these cardholders had been overcharged because their payments had been sent to other people's accounts by mistake.

The funds were misdirected for the first payment period after the 15,000 WWF accounts were converted into ordinary Visa accounts - in the period January 1-26 this year.

The bank had identified the error by the end of the month and changed its systems so payments after that time were correctly credited. But it chose only to make reimbursements to customers who contacted it to complain that their payments were not shown - which it said amounted to 'a significant number' of complaints.

A senior manager in its credit card services unit decided that it was not necessary to contact anybody else who was affected, although it would have been possible to identify these cardholders.

Only a few days ago, when a customer complained to a more senior bank official, did NatWest decide to contact every customer with a WWF account and adjust their statements.

The bank says it has now brought in a team to identify all those cardholders who may have been affected and to arrange reimbursements and some possible additional compensation. They can all expect to receive letters of apology in the next few days.

Any WWF customers who made payments which were not credited to their accounts will see that money restored and will have the additional interest charges made against them removed. The bank said it was also considering offering some extra reward.

Any other Visa customers with statements showing payments from others misdirected to their accounts will see the money removed, but will not be expected to pay the additional interest they owe.

NatWest has apologised for the errors and said that no customers would be left out of pocket as a result of the mistake. The bank has launched an internal inquiry to see whether disciplinary action is called for, and to prevent such incidents happening again.

NatWest said the error occurred after it decided to withdraw the WWF affinity card in late December last year. A 'human error' when converting them into ordinary Visa accounts meant that some went to other people's accounts with the same identification numbers.

However, the issue demonstrates how important it is for all bank customers to check their statements meticulously. Only last August, NatWest decided to write to 1m credit card holders after discovering statement errors following a change in computer software.

The Consumers' Association said last week that the incident was just the latest instance of the lack of adequate checking carried out by banks on their customers' transactions.

A survey it carried out last year showed that one in seven current account holders with UK banks had found inaccuracies in their statements.

National Westminster Bank GB United Kingdom, EC P6141 Personal Credit Institutions TECH Products TECH Services CMMT Comment & Analysis P6141 The Financial Times London Page VI 542
Finance and the Family: Lump sums, the case for caution - Living with redundancy Publication 930313FT Processed by FT 930313 By SCHEHERAZADE DANESHKHU

POOLS WINNERS are usually advised to put their winnings in the bank and take a holiday before doing anything with their money.

If you have been made redundant you may feel like anything but a pools winner - but the advice still applies: do not do rush into anything with your redundancy lump sum.

What you finally do depends on your financial circumstances, but it is not a good idea to tie up money when facing an uncertain future.

David Harris, of Chantry Financial Services, fee-based advisers, says: 'For the first one to three months you should do nothing from an investment point of view until you are in a situation to make long-term plans.'

Put the money in an instant access building society account in preference to a bank account, since interest rates are likely to be higher. Postal accounts, which give reasonable access, pay some of the highest interest because of their low overheads. If your spouse is a non-taxpayer, depositing the money in their name will reduce the overall tax burden.

Even if your redundancy pay-off is sizeable, many will find it is insufficient to live off for the rest of their lives. It is therefore essential to draw up a personal budget in order to make financial planning easier. Write down all sources of income and expenditure for the next six months, including income from equity investments and financial commitments such as a mortgage. Do not forget direct debits.

You must also contact creditors to tell them that you have been made redundant: even if you do not need their goodwill immediately, you may need it eventually, and unless they know of your changed financial circumstances they cannot make allowances for them.

Although it is unwise to make financial investments immediately, do not ignore essential insurance. If you no longer have life or health insurance cover because these had been provided by your employer you should consider taking on a new policy, especially if you have children.

Some insurance companies will agree to continue health cover for an individual who had been in a company scheme without requiring a new medical examination. This will have to be arranged soon after leaving the company.

It is also important to maintain existing pension levels. If you had a company scheme, you could leave the pension with the company, or transfer it to a personal scheme or your new employer's company scheme if you find employment. This subject will be addressed in a later article.

You should cut unnecessary expenditure by using your lump sum to pay off expensive debts, such as credit card bills. Most cards charge an annual percentage rate of between 21 and 26 per cent. If you need to borrow, it may be cheaper to arrange a personal loan with your bank.

If your redundancy pay was not substantial it would be unwise to use all of it to pay off debts, since you will need money to live on. It is therefore important to get financial advice. 'Tied' agents, who can only sell the products of one company, should be avoided in favour of an independent financial adviser, preferably one who charges fees.

Most IFAs are remunerated by commission from insurance and other companies to encourage them to recommend their products. This cost is borne by the consumer through high 'front-end' charges.' Although many commission-charging advisers are scrupulous about their recommendations, fee-based advisers - who charge for advice directly - do not face the same potential conflict of interest when giving advice.

The adviser should be registered under the Financial Services Act - check by telephoning the Securities and Investments Board's central register on 071-929-3652.

If you have share options in a save-as-you-earn share option scheme operated by your former employer, check the scheme rules. Most company schemes allow an employee who is made redundant to exercise their share options within six months of leaving the company, regardless of the original option date.

The disadvantage for those who leave a scheme early is that they lose the bonus payable towards the end of the contract. This increases the final interest payment and therefore the amount available to buy shares.

The alternative, if you can afford it, is to continue the scheme until it ends and take out the cash.

If your redundancy payoff is small and you need access to cash, you should start by liquidating those investments with the smallest penalties. Taking out the cash saved in the share option scheme is one option, as is selling shares, but watch for any potential capital gains tax liability.

Raiding a Tessa is another solution - you simply pay tax on the interest instead of receiving it gross at the end of its five year period.

You can make savings by stopping a unit trust or investment trust savings scheme; this is penalty-free and the scheme can be revived once you have a new job.

Long-term investments you should avoid cashing-in include endowments and whole-of-life or similar plans because the return for early surrender is so low. 'You are stuck with the policy anyway and you will not be able to stop premiums without losing money,' says Peter Smith, of financial advisers Hill Martin. If you have no choice, check the surrender value with the insurance company and compare it with what you would get by selling the policy to a marketmaker or at auction.

If you find it difficult to keep up your mortgage payments, see if your lender is prepared to suspend capital repayments or to defer interest if the mortgage is on a repayment basis. Remember that these interest payments will mount up. The lender might also be prepared to extend the term of the loan, thereby reducing your monthly outlay.

In last week's article, the figure for unemployment benefit payable for a dependent adult is Pounds 26.60, not Pounds 25.55, according to the DSS. Unemployment benefit is not affected by statutory redundancy pay.

GB United Kingdom, EC P6282 Investment Advice CMMT Comment & Analysis P6282 The Financial Times London Page VI 1032
Finance and the Family: Saints aims for best of both worlds - Investment Trusts / Philip Coggan reports on Scottish American, which offers both income and an international flavour Publication 930313FT Processed by FT 930313 By PHILIP COGGAN

THE INVESTOR who wants an international portfolio often has to sacrifice income. But Scottish American Investment Company - or Saints, as it prefers to be called - pays quarterly dividends and offers a yield of 4 per cent, barely below the present return on the UK market.

The trust was founded in 1873 to invest in US railway bonds. At the time, they were offering 3 per cent when gilts were returning just 2 per cent.

The American flavour lasted until the early 1980s, when the trust had 30 per cent of its assets in the region, but the holding has fallen to 11.5 per cent. That is one reason the trust prefers the name Saints to its official title.

Like many other Scottish trust groups, it was managed by a firm of Edinburgh lawyers which needed a vehicle to manage its clients' money. It was not until 1970 that a separate management company, Stewart Fund Managers, was established. This, in in turn, merged with Ivory & Company in 1985 to become Stewart Ivory.

The present manager is Teddy Tulloch, who joined the firm in 1972 and has been looking after Saints since 1985. He is responsible for asset allocation, but stocks are selected by specialist regional teams.

Outside the UK, the trust concentrates on growth-oriented stocks, looking for those with high returns on equity, a strong balance sheet and a positive cash flow. Its UK portfolio has to pay the dividends, so the managers aim for a yield on this portion of around 25 per cent above that on the All-Share index.

The 10 largest investments at December 31 were: Davis Service, Independent Insurance, British Telecommunications, Bowater, Christian Salvesen, British Gas, Shell, Powell Duffryn, Boots, and Value & Income Trust.

Many trusts gear up (borrow to invest in shares) on the ground that returns from equities beat fixed-interest returns in the long run. But the managers of Saints have set themselves a challenging task. Its main form of borrowing is an issue of unsecured loan stock, which rises in line with the FT-A All-Share index. The argument is that a manager ought to be able to beat the All-Share - otherwise, why employ him?

Nevertheless, it means that if the manager does have a bad year investing the gross assets, the effect on the net assets will be doubly bad since the indexed stock (worth Pounds 67.6m at the end of 1992) will have risen in value. Stewart Ivory can take some steps to reduce this risk by hedging in the futures market.

As the graph shows, the trust has kept pace with the All-Share only over the past 10 years. It had two bad periods - one in the early 1980s, when it was stuck with too many unquoted oil stocks; and another late in 1989, when it was over-exposed to small companies.

Over the past two years, however, the record has improved. Although the trust is 14th out of 19 in the international general sector over seven years, with a return of 142.9 per cent, it is eighth out of 21 over two years. (Figures from Finstat are mid-market to mid-market, with income re-invested over the period to March 1).

Allowing for the UK gearing of 20 per cent, the trust's net exposure to UK equities was around 46.7 per cent at end-1992, with other assets split between North America (11.5 per cent), continental Europe (8.1), Japan (5.6), Pacific Rim (8.1), unquoted (6.7), fixed interest (10.3) and others (3.0).

The trust has had some success in attracting individual investors (who now own around half) and the discount has narrowed to 13 per cent, compared with 22 per cent at end-1987. The annual report of the company is one of the best in the investment trust field, with clear breakdowns of the portfolio by sector and stocks.

Key facts. According to NatWest Securities Limited, the net assets per share on March 10 were 168p, putting the shares, at 145p, on a discount of 13.7 per cent. The net assets of the trust were around Pounds 375m on that basis, and the gross assets around Pounds 450m. The market capitalisation was Pounds 325m and the yield 4 per cent. The manager's annual fee is 0.25 per cent of shareholders' funds, plus 3.5 per cent of total income less borrowing costs.

Board. All the directors are independent of the managers. Jack Shaw, the chairman, is deputy governor of the Bank of Scotland. Other directors are: William Berry, senior partner of legal firm of Murray, Beith and Murray; Sir James Mellon, chairman of Scottish Homes; Dr Janet Morgan, an author and director of WH Smith; and Barry Sealey, director of Scottish Equitable.

Savings scheme and PEP details. The minimum investment in the savings scheme is Pounds 25 a month, or Pounds 250 for a lump sum. There is an initial charge of Pounds 10 plus VAT, which is deducted from the first payment.

The trust is fully Pepable; there is an annual charge of Pounds 25 plus VAT. For those who buy the trust through an independent financial adviser, there might be a charge of 3 per cent plus VAT. This is a change from Saints' previous policy when investors had to pay commission even if they did not consult an adviser. The minimum investment is Pounds 1,800 for a lump sum, or Pounds 150 a month.

Scottish American Investment Co GB United Kingdom, EC P672 Investment Offices CMMT Comment & Analysis P672 The Financial Times London Page VI 956
Finance and the Family: Pibs - price up, yields down Publication 930313FT Processed by FT 930313 By SCHEHERAZADE DANESHKHU THE YIELDS on permanent interest bearing shares

which are building society shares issued to raise capital for the society - have been steadily falling as their prices rise.

In our last table, which showed prices at midday January 21, the gross yield on Britannia Pibs, for example, was 11.35 per cent; that had fallen to 10.86 per cent by midday on Thursday. The price rose from 114.50p to 119.75p over the same period.

The fall in interest rates has been favourable to Pibs prices and although yields have fallen, they are still high compared with returns from equities or deposit accounts. This helps account for the increasing popularity of Pibs with private investors looking for income, but it is also a reflection of the risk they carry.

Pibs pay a fixed income twice a year net of basic rate tax. Any gains on the sale of the shares are exempt from capital gains tax.

They are deeply subordinated - which means that were the society to collapse, Pibs holders would be behind all other creditors in the queue for repayment.

If there is another cut in interest rates, prices can be expected to increase further but once interest rates turn upwards, prices will fall. Since Pibs are irredeemable shares the building society is under no obligation to repay the principal, so the original investment can only be regained by selling the shares. Falls in price therefore threaten the Pibs holder's capital although the income remains fixed in perpetuity, subject to the society's ability to maintain payments.

GB United Kingdom, EC P603 Savings Institutions P6211 Security Brokers and Dealers CMMT Comment & Analysis P603 P6211 The Financial Times London Page VI 298
International Company News: German bourse chief executive to step down Publication 930313FT Processed by FT 930313 By DAVID WALLER FRANKFURT

MR Rudiger von Rosen, one of the most prominent figures in the campaign to strengthen Germany's financial markets in recent years, is to step down as chief executive of the Deutsche Borse, the single German stock exchange which came into being at the beginning of the year.

The move came as a surprise in Frankfurt as it was only recently that Mr von Rosen had his contract as chief executive renewed until the end of 1994.

He is to be replaced by Mr Werner Seifert, a Swiss businessman who is main board director of Swiss Re responsible for the company's primary insurance activities.

Mr von Rosen will retain his job as chief executive until the end of July when Mr Seifert, 44, will take over. The official statement said that Mr von Rosen would stay on as an ordinary member of the managing board but Frankfurt financiers said that this was unlikely.

Mr von Rosen, 49, was not available for comment yesterday. He is a former head of press relations at the Bundesbank and personal assistant to Mr Karl Otto Pohl, former president of the German central bank.

He is one of the more outspoken figures on the German financial scene. He left the Bundesbank in 1986 to take up a position as managing director of the Frankfurt stock exchange, the largest in Germany.

He was a key figure in the campaign which led ultimately to the creation of the Deutsche Borse, a holding structure which brings Germany's eight regional stock-exchanges partially under one roof.

Deutsche Boerse DE Germany, EC P6231 Security and Commodity Exchanges PEOP Personnel News COMP Company News Rudiger von Rosen, Chief Executive Deutsche Borse (Germany) P6231 The Financial Times London Page 12 307
International Company News: N American side lifts ABN Amro Publication 930313FT Processed by FT 930313 By RONALD VAN DE KROL AMSTERDAM

NET profits at ABN Amro, the Netherlands' largest bank, rose by nearly 10 per cent in 1992 with buoyant results from North America helping to compensate for a relatively sluggish performance at home and in Europe.

The bank said net profit climbed by 9.6 per cent to Fl 1.68bn (Dollars 908m), while profit per share rose by a more moderate 5.6 per cent to Fl 5.51. The dividend is being held at Fl 2.90.

'Given the fact that 1992 was not an easy year in several countries, the result is satisfactory,' said Mr Robert Hazelhoff, ABN Amro's chairman.

Total revenue at the bank was up 8.5 per cent at Fl 12.28bn, while total costs saw the same percentage increase to Fl 8.32bn, producing an 8.5 per cent gain in gross profits to Fl 3.97bn.

ABN Amro attributed the high rate of growth in costs to the acquisitions last year of Talman Home Federal Savings of Illinois, the London-based European operations of stockbrokers Hoare Govett, and CM Capital Markets of Spain.

The first-time consolidation of Talman helped double ABN Amro's gross profits in North America to Fl 811m. Without Talman, results would have risen by nearly 68 per cent. Mr Hazelhoff said the emerging recovery in the US had led to a rise in demand for credit from small and medium-sized businesses.

Lending in the US rose by 38.9 per cent, compared with just 3.7 per cent in Europe and 7.2 per cent in the Netherlands.

At home, gross results fell by 3.4 per cent to Fl 2.5bn from Fl 2.59bn in 1991. The previous year's figures had been flattered by nearly Fl 200m in book profits from the divestment of two intermediary companies.

ABN Amro Bank NL Netherlands, EC P6011 Federal Reserve Banks FIN Annual report P6011 The Financial Times London Page 12 324
International Company News: Fujitsu forecasts Y20bn loss Publication 930313FT Processed by FT 930313 By MICHIYO NAKAMOTO TOKYO

FUJITSU, Japan's largest computer maker and number two in the world rankings, expects to post a pre-tax loss this year, the first since the group was listed on the Tokyo stock exchange in 1949.

Fujitsu, which owns ICL, the UK computer company, yesterday said the unexpected length of Japan's economic slowdown would leave the group with a pre-tax loss on a consolidated basis of Y20bn (Dollars 159.2m) for the year ending March, 1993. This reverses an earlier Fujitsu forecast of a Y30bn profit.

The Japanese computer group, which emulated and strove to surpass IBM, the US computer group, will end up following its fiercest rival into the red.

Fujitsu says it will pay a final dividend of Y3 a share and not the Y5 forecast. Consolidated revenues, which were forecast in October to be Y3,600bn would instead be Y150bn less at Y3,400bn. However, ICL was expected to make a profit, Fujitsu said.

Fujitsu said that the profit revision comes as a result of the sharp fall in demand for computers and in profit margins from computers. While markets worldwide have been affected by the slump in corporate investment, the Japanese computer market, in particular, has been hit by cuts in capital investment by corporations and financial institutions.

While computer companies normally expect a burst of demand from customers just before the closing of books in March, this year that demand did not materialise, the group said.

The Japanese computer market in the past five months has been disrupted by price cuts, which have eaten into the profit margins of computer manufacturers.

Of the Y90bn difference between Fujitsu's profits forecast in October and its latest forecast, Y75bn relates to its computer business, Y5bn to electronic devices and Y10bn to communications equipment, Fujitsu said.

Fujitsu has a heavy financial burden after its purchase of ICL for Pounds 700m and recent expansion of its semiconductor manufacturing capacity in the UK.

The group announced earlier this week that it would reduce graduate intake next year to 300 people, compared with 2,200 this year and nearly 4,000 in 1989.

Capital spending is expected to remain at this year's level while R&D expenditure is gradually reduced.

Fujitsu JP Japan, Asia P357 Computer and Office Equipment COMP Company News P357 The Financial Times London Page 12 396
International Company News: Second shake-up at Posco in six months Publication 930313FT Processed by FT 930313 By JOHN BURTON SEOUL

SENIOR management at Pohang Iron and Steel (Posco), the world's third largest steel company, changed yesterday for the second time in six months.

The reshuffle is related to the forced resignation from the state-run steel company of Mr Park Tae-joon, its founder, for his political opposition to South Korea's new president. The departure yesterday of Mr Park as Posco honorary chairman triggered the resignation of two top aides, Mr Hwang Kyung-ro, chairman, and Mr Park Tuk-pyo, president.

The two men were promoted last October when Mr Park stepped down as chairman due to his refusal to support Mr Kim Young-sam as the presidential candidate.

Posco's new chairman is Mr Chung Myung-sik, current vice-chairman. The new president is Mr Cho Mal-soo, vice-president for new business investment and purchasing.

Pohang Iron and Steel SK Slovakia, East Europe P331 Blast Furnace and Basic Steel Products MGMT Management PEOP Personnel News Tae-joon, P Founder Pohang Iron and Steel (South Korea) Kyung-ro, H Former Chairman Pohang Iron and Steel (South Korea) Tuk-pyo, P Former President Pohang Iron and Steel (South Korea) Myung-sik, C Chairman Pohang Iron and Steel (South Korea) Mal-soo, C President Pohang Iron and Steel (South Korea) P331 The Financial Times London Page 12 222
International Company News: Credit Lyonnais may fall into red Publication 930313FT Processed by FT 930313 By ALICE RAWSTHORN PARIS

CREDIT Lyonnais, the big French bank clouded by controversy following aggressive expansion, last year had its worst results for two decades, according to Mr Jean-Yves Haberer, chairman.

This suggests that Credit Lyonnais, one of Europe's biggest banks and a flagship of the French public sector, may have made a loss in 1992 since in 1974 the group fell into the red with a net loss of FFr177m (Dollars 31.49m) under the impact of recession and a prolonged strike.

Mr Haberer said in an interview with a French newspaper yesterday that it would not be possible to privatise Credit Lyonnais in current economic conditions. France's conservative coalition, which is the firm favourite to win this month's parliamentary elections, has confirmed that it hoped to privatise both Credit Lyonnais and Banque Nationale de Paris, the other large state-controlled bank.

Credit Lyonnais was last year affected by the slowdown in the French economy and the legacy of the aggressive lending policy it pursued since Mr Haberer became chairman in 1988.

As a result, it has been much more vulnerable than other French banks to the weakest areas of the economy, notably commercial property and small businesses. It has been hit by its involvement with a number of international corporate failures, including Mr Robert Maxwell's media group, the Olympia & York property company and MGM, the troubled Hollywood film studio.

Mr Haberer, who was appointed by the current socialist administration and whose position may be jeopardised by a change of government, blamed last year's poor performance on a steep increase in provisions.

He said Credit Lyonnais had been badly affected by its exposure to property and business failures in France and by the difficulties of its Dutch subsidiary, which was responsible for the MGM deal.

Credit Lyonnais has announced that it barely broke even in the first half of last year with net profits of just FFr119m after provisions of FFr6.3bn. Mr Haberer said it would be forced to make higher provisions for the second half.

Credit Lyonnais FR France, EC P6011 Federal Reserve Banks COMP Company News P6011 The Financial Times London Page 12 370
International Company News: VW confirms Lopez has left key position at GM Publication 930313FT Processed by FT 930313 By DAVID WALLER and MARTIN DICKSON FRANKFURT, NEW YORK

VOLKSWAGEN, Europe's largest car manufacturer, confirmed yesterday that it has persuaded Mr Ignacio Lopez de Arriortua to leave his job as head of global purchasing at General Motors in the US.

The move comes only weeks after GM and VW both denied reports that Mr Lopez, who has a reputation as a tough cost cutter, would be leaving to join the German group as part of an overhaul of VW top management.

VW refused to say what Mr Lopez's role would be, but it is widely expected that he will be put in charge of world purchasing following the meeting of the company's supervisory board on Tuesday next week. Mr Lopez, who last year moved within GM from Europe to Detroit, is credited with giving GM the most competitive cost base of any of Europe's volume carmakers.

VW sold a record number of cars last year but is labouring under a number of serious problems amid what chief executive Mr Ferdinand Piech last week called the most severe downturn in the German car industry since 1945.

Part of the response has been to put pressure on suppliers to cut prices but it is believed that the company plans to implement an overhaul of its sourcing arrangements, headed by Mr Lopez.

Operating losses in the core VW division are thought to have been DM1bn (Dollars 619m) last year.

The company is planning to cut its workforce by 36,000 people to 276,000 by the end of 1997, a reduction of 13 per cent.

Mr Lopez's departure casts doubt on the future of GM's cost reduction programme, which is a vital part of the company's efforts to restore to profit its loss-making North American carmaking operations.

GM insisted yesterday that Mr Lopez had put in place a sufficiently strong team, and so changed the group's methods of parts purchasing, that the programme could roll on without him.

Some analysts said the costs drive was so much a product of Mr Lopez's iconoclastic management style that it was likely to suffer from his departure after only 10 months in the job.

Volkswagen General Motors Corp DE Germany, EC P3711 Motor Vehicles and Car Bodies PEOP Personnel News MGMT Management Ignacio Lopez de Arriortua, Head of Global Purchasing General Motors Corp P3711 The Financial Times London Page 12 411
International Company News: German bourse chief executive to step down Publication 930313FT Processed by FT 930313 By DAVID WALLER FRANKFURT

MR Rudiger von Rosen, one of the most prominent figures in the campaign to strengthen Germany's financial markets in recent years, is to step down as chief executive of the Deutsche Borse, the single German stock exchange which came into being at the beginning of the year.

The move came as a surprise in Frankfurt as it was only recently that Mr von Rosen had his contract as chief executive renewed until the end of 1994.

He is to be replaced by Mr Werner Seifert, a Swiss businessman who is main board director of Swiss Re responsible for the company's primary insurance activities.

Mr von Rosen will retain his job as chief executive until the end of July when Mr Seifert, 44, will take over. The official statement said that Mr von Rosen would stay on as an ordinary member of the managing board but Frankfurt financiers said that this was unlikely.

Mr von Rosen, 49, was not available for comment yesterday. He is a former head of press relations at the Bundesbank and personal assistant to Mr Karl Otto Pohl, former president of the German central bank.

He is one of the more outspoken figures on the German financial scene. He left the Bundesbank in 1986 to take up a position as managing director of the Frankfurt stock exchange, the largest in Germany.

He was an important figure in the campaign which led ultimately to the creation of the Deutsche Borse, a holding structure which brings Germany's eight regional stock-exchanges partially under one roof.

It encompasses the DTB futures and options market and the Kassenverein settlements organisation.

Bankers said the move reflected the influence of Mr Rolf Breuer, main board director of Deutsche Bank and head of the Deutsche Borse's supervisory board. A statement issued by Mr Breuer said that Mr Seifert's appointment was necessary to complete the Deutsche Borse's management board.

This would help the process of integrating the different parts of the Deutsche Borse's activities and the goal of increasing the transparency and liquidity of Germany's financial markets, the statement said.

Deutsche Boerse DE Germany, EC P6231 Security and Commodity Exchanges PEOP Personnel News COMP Company News Rudiger von Rosen, Chief Executive Deutsche Borse (Germany) P6231 The Financial Times London Page 12 396
International Company News: CRA bids ADollars 716m for coal group Publication 930313FT Processed by FT 930313 By KEVIN BROWN SYDNEY

CRA, the Australian mining group, yesterday launched a hostile takeover bid for Coal & Allied Industries (Cail), a coal producer in the Hunter Valley area of New South Wales, almost exactly two years after the failure of an earlier offer.

The ADollars 11.50 a share bid values Cail at ADollars 716m (USDollars 487m). CRA owns 40.4 per cent of Cail following a ADollars 7.85 a share offer in March 1991, and the purchase of a further 2.9 per cent stake yesterday.

The offer is conditional on approval by the Foreign Investment Review Board (Firb) because CRA is 49 per cent owned by RTZ of the UK, the world's biggest mining group.

Mr John Ralph, CRA chief executive, said the acquisition of Cail was an integral part of the group's strategy of increasing the size of its coal business. However, he said the offer would not be increased.

Mr Tony Haraldson, Cail chief executive, urged shareholders not to respond to the offer until it had been considered by the board. He said the board would probably meet early next week.

The long-awaited bid represents CRA's second attempt to leapfrog Broken Hill Proprietary (BHP) as Australia's biggest coal producer by acquiring control of Cail.

The offer, which is pitched at 14 times average brokers' forecasts for CAIL's earnings for the year ending June, represents a premium of 28 per cent over the ADollars 9.05 closing price of Cail shares on Thursday.

However, Cail shares closed ADollars 2.05 higher at ADollars 11.50 yesterday.

CRA Coal and Allied Industries AU Australia P10 Metal Mining P12 Coal Mining COMP Acquisition P10 P12 The Financial Times London Page 12 293
International Company News: Hudson's Bay improves 41% Publication 930313FT Processed by FT 930313 By ROBERT GIBBENS MONTREAL

HUDSON'S BAY, Canada's biggest retailer, surprised the market with a 31 per cent gain in final-quarter profits to push earnings for the year ended January ahead by 41 per cent, Robert Gibbens writes from Montreal.

The group benefited from strong Christmas sales, declining cross-border shopping, lower interest costs and a better economy in western Canada. Full-year profits were CDollars 116.7m (USDollars 93.8m) or CDollars 2.32 a share, against CDollars 82.8m or CDollars 1.61 a share. Sales totalled CDollars 5.15bn, up 2 per cent.

Hudsons Bay Co CA Canada P5311 Department Stores FIN Annual report P5311 The Financial Times London Page 12 118
Week in the Markets: Gold edges above seven-year low Publication 930313FT Processed by FT 930313 By DAVID BLACKWELL

GOLD ended the week, in the words of one analyst, 'clinging manfully to the ropes by the skin of of its gold-capped teeth.' It closed on the London bullion market yesterday at Dollars 327.75 a troy ounce, down Dollars 2.20 on the week but holding above the successive seven-year lows seen earlier.

The market went into reverse from the beginning of the week, shedding Dollars 2.80 on Monday and retreating to Dollars 326.05 on Wednesday. It was fixed at consecutive seven-year lows on Tuesday and Wednesday.

The fall was heralded last week by the decline of South Africa's commercial rand to 3.19 against the US dollar, pointed out Ms Rhona O'Connell, analyst at Williams de Broe. At Dollars 328 a troy ounce, South African producers were able to sell their gold forward at R1,050, leaving them a healthy profit.

The retreat below the recent trading range between Dollars 327 and Dollars 332 led many analysts to predict further falls. Mr Lawrence Eagles, of GNI the London futures broker, said the market was looking very bad technically, and predicted a rapid decline if Dollars 325 was breached, possibly to below Dollars 300 by the end of the year.

While support has held at Dollars 325 this week, there is little apart from Far Eastern demand to support the gold market, which has lost its lure for investors in the West. 'There is a total lack of interest,' said Mr Euan Worthington of SG Warburg. 'People have other games to play.'

Much of the demand in the Far East has come from China. A recent report from American Precious Metals Advisors of the US suggested that the country absorbed 800 tonnes (26m troy ounces) last year. This more than offset the 650 tonnes sold by central banks, including 400 tonnes by the Dutch.

The threat of further central bank sales continues to hang over the market, while any rally is likely to be met by further producer sales - particularly from South Africa.

Events in Russia, where Boris Yeltsin is fighting for his political survival, have helped to boost platinum metal group prices because of fears of supply disruption. Platinum ended up Dollars 6.95 on the week at Dollars 351.25.

But any so-called 'safe-haven' money is expected to go to the US dollar - and the stronger the dollar, the worse for gold.

As one London dealer told the Reuter news agency yesterday: 'Gold looks awful which ever way you look at it.'

On the London Metal Exchange copper has shone dimly in a week of little interest for the base metals. Three-month metal closed yesterday at Pounds 1,546.25 a tonne, up Pounds 48.50 on the week. In dollar terms it moved above the Dollars 2,200 level.

Mr Nick Moore, analyst with Ord Minnett, said that of all the base metals, copper had the most robust fundamentals. Stocks on New York's Comex had declined by 14 per cent from their mid-February peak to 97,116 tonnes, giving a clear signal that the US was emerging from recession, he said.

However, Mr Phillip Crowson, chief economist with RTZ, the world's biggest mining group, said this week that while the US economy was recovering, the German and Japanese economies were not. He pointed out that Western Europe and Japan accounted for roughly half the Western World's consumption of non-ferrous metals.

'Even with the US recovery gathering momentum, therefore, prices of metals and minerals are unlikely to depart far from their present trading ranges until late in the year at best,' he predicted.

In the softs markets cocoa has continued to slide, again giving delegates to next week's International Cocoa Organisation council meeting plenty to chew on as they struggle to reach a compromise that might lead to a new agreement with economic clauses.

The London May contract closed yesterday at Pounds 689 a tonne, a fall of Pounds 20 on the week and Pounds 73 off the recent peak.

The retreat has mainly been attributed to the failure of last week's talks on the cocoa pact in Geneva. Profit taking by a few speculators who were gambling on the talks succeeding turned into technical selling as chart levels were breached.

'There has been long liquidation by the speculators, the trade, the funds and the industry,' said Mr Tony Chadwick, of Prudential Bache. The situation had been worsened by the fact that the market had absorbed a lot of selling from producer countries during the recent rally.

Consumer and producer delegates in Geneva were able to agree only that 350,000 tonnes of cocoa should be withheld from the world market. They will be trying next week to agree on how a withholding scheme should be financed, and at what level prices should be defended. Any progress could lead them back to Geneva.

The New York raw sugar market, which has been pushed over 10 cents a lb by cuts in the estimated level of Thai production because of drought, went into retreat at the beginning of the week. But yet another cut in the Thai production forecast to 3.51m tonnes - the lowest level for five years - moved the market smartly up again.

The fall in estimates for Thai production has been quite dramatic - from an early season forecast of 5m tonnes it came down to 4.44m tonnes at the end of last month and 3.86m tonnes last week. Thai production is likely to remain the key factor in the sugar market, with some analysts expecting a move above 11 cents soon.

--------------------------------------- LME WAREHOUSE STOCKS (As at Thursday's close) Tonnes --------------------------------------- Aluminium +22,700 to 1,699,700 Copper +450 to 339,400 Lead +2,150 to 237,300 Nickel +648 to 85,530 Zinc +5,500 to 579,575 Tin +595 to 18,990 ---------------------------------------

XA World GB United Kingdom, EC P1041 Gold Ores P3339 Primary Nonferrous Metals, NEC P0722 Crop Harvesting P0179 Fruits and Tree Nuts, NEC MKTS Market data COSTS Commodity prices MKTS Production P1041 P3339 P0722 P0179 The Financial Times London Page 11 1011
Economic Diary Publication 930313FT Processed by FT 930313

TODAY: Australian election. National Savings results (February).

MONDAY: Index of production (January). Half-yearly update to seasonal adhustment of monetary aggregates (to January). European Community economic ministers meet in Brussels. European Community transport council meets in Brussels. Mr William Clinton, US president, meets Mr Yitzhak Rabin, Israeli prime minister, in Washington. People's congress opens in Beijing. Start of two-day Financial Times conference 'The European Water Industry' at the Hotel Inter-Continental in London.

TUESDAY: Budget. Company liquidity (fourth quarter). Public sector borrowing requirement (February). US housing starts (February); current account (quarter four 1992). European Agriculture council meets in Brussels (until Wednesday).

WEDNESDAY: South African budget. Capital expenditure and stockbuilding (fourth quarter). Retail sales (February). US consumer price index (February); industrial production (February); capacity utilisation (February); real earnings (February). Bus strike in London.

THURSDAY: Labour market statistics: unemployment and unfilled vacancies (February-provisional); average earnings indices (January-provisional); employment, hours, productivity and unit wage costs; industrial disputes. Labour Force Survey (September-November 1992). Provisional estimates of monetary aggregates (February). Major British banking groups' monthly statement (February). Building societies monthly figures (February). Provisional figures of vehicle production (February). European Community fisheries council meets in Brussels. Bundesbank council meets.

FRIDAY: Retail prices index and tax and price index (February). Start of two-day informal meeting of the EC industry council in Nyborg, Denmark.

XA World P99 Nonclassifiable Establishments GOVT Government News ECON Economic Indicators P99 The Financial Times London Page 11 239
UK Company News: Airtours buys more shares as largest Owners holder accepts Publication 930313FT Processed by FT 930313 By RICHARD GOURLAY

AIRTOURS, the holiday company, yesterday continued to buy shares in Owners Abroad, the rival holiday company for which it is making a Pounds 294m offer ahead of next Tuesday's close.

Airtours' shares rose 6p to 339p yesterday, allowing the company to buy shares in the market at up to 150p, and taking its total purchases in the last two days to 7.13 per cent of Owners.

Airtours is allowed, under takeover rules, to buy in the market up to a price equal to the value of its paper offer, which at the close last night was 149.3p.

It also emerged yesterday that Mercury Asset Management, Owners' largest shareholder, had accepted the Airtours offer. After purchases of 400,000 shares on Thursday at an average price of 141.5p, MAM holds a 15.04 per cent stake.

The pivotal shareholder is now Phillips & Drew Fund Management, which has been buying shares since the bid was launched and controls about 10.8 per cent.

Phillips has not declared whether it will accept Airtours' offer which leaves the outcome of the bid finely balanced.

City observers said yesterday that Thomas Cook, the travel agency, could still block Airtours' bid by buying shares in the market next week.

Last Monday, Cook made a tender offer for 12.5 per cent of Owners' shares at 150p conditional on Airtours' bid failing. Instead of strengthening the Owners' case, the move was broadly greeted as irrelevant, particularly as Airtours' share price continued to climb.

A purchase in the market by Cook would be doubly effective if the shares were bought from an Owners' shareholder that might have otherwise accepted the Airtours' offers.

Airtours' brokers said last night that they were pleased with the purchases in the market, even though there had not been enough sellers at 150p to allow purchase of the 10 per cent stake it is allowed to buy under takeover rules.

Mr David Crossland, Airtours chairman, said he was confident last night but added: 'This is a close run thing. Where would Owners' share price be without the bid? I am urging shareholders to accept now.'

Airtours Owners Abroad Group Mercury Asset Management Thomas Cook GB United Kingdom, EC P4724 Travel Agencies P4725 Tour Operators COMP Shareholding P4724 P4725 The Financial Times London Page 10 398
UK Company News: Pilkington expands via Pounds 95m purchase - Buy from Heywood will lead to bigger share of the UK market Publication 930313FT Processed by FT 930313 By MAGGIE URRY and ANDREW TAYLOR

PILKINGTON, the glass group, is paying Pounds 95m for the UK and Irish glass processing and distribution business of Heywood Williams, the building and automotive components distributor.

Pilkington said the purchase would give it vertical integration in the UK similar to the pattern in continental Europe. The acquisition follows the 1990 purchase by St Gobain, the French glass maker, of Solaglass, the second largest UK glass distributor.

The deal, on which Heywood's shareholders will vote on April 1, has many attractions for Pilkington. It would gain a leading 24 per cent of the UK distribution market, letting it market new products direct to customers and improve manufacturing capacity utilisation.

It would also enable Pilkington to use some of its unrelieved advance corporation tax, and would immediately enhance earnings. Pilkington's shares rose 7p to 108p.

However, analysts said the price was high, and feared that although Pilkington would increase its sales to the Heywood business it could lose sales to competitors.

Mr Roger Leverton, Pilkington chief executive, said the group's lack of control of distribution had put it at a disadvantage in the UK market.

If the deal goes through, the Heywood business would increase its glass purchases from Pilkington from the current 60 per cent to 100 per cent.

This would lift Pilkington's capacity utilisation in the UK to about 95 per cent.

Mr Leverton admitted that the price showed that Heywood 'understood the strategic importance to a glass manufacturer' of gaining control of distribution. But he said the merger benefits would in effect halve the p/e Pilkington was paying.

The businesses being acquired were making an 'on-going' profit for 1992 of Pounds 5.2m. The added benefit of an 8 per cent rise in the glass price from February 1, which Mr Leverton said was 'absolutely sticking', would give an exit p/e of about 17 before the merger benefits.

Mr Ralph Hinchliffe, executive chairman of Heywood, said the structure of the UK glass market had changed radically in recent years, influenced by glass prices down more than 30 per cent since 1988, higher imports and St Gobain's acquisition of Solaglass.

'We came to the conclusion that the business under our ownership was unlikely to return to satisfactory levels of profitability,' said Mr Hinchliffe.

Mr Leverton was conscious that customers of Pilkington which compete with the Heywood businesses could be upset by the tie-up. He said the operation would be run on an arms length basis.

'About 50 per cent of the market is still held by independents who buy a lot of glass from Pilkington. We must ensure that they can live comfortably with us,' he said.

The deal would involve a goodwill write-off of Pounds 52.6m, and would be financed by debt. This would increase Pilkington's gearing from 80 to 90 per cent, Mr Leverton said.

However, Pilkington expects to recoup 'significantly more than Pounds 95m' from the sale of its US spectacle lens business. It is also looking at selling a stake in its Australian subsidiary.

See Lex

Pilkington Heywood Williams GB United Kingdom, EC P3229 Pressed and Blown Glass, NEC P3442 Metal Doors, Sash and Trim COMP Acquisition MKTS Market shares P3229 P3442 The Financial Times London Page 10 566
UK Company News: Few buyers are found for Isosceles debt Publication 930313FT Processed by FT 930313 By MAGGIE URRY

LENDERS to Isosceles, the Gateway food retail group in the middle of restructuring talks with its banks and shareholders, are finding little success in selling debt in the secondary market, traders said.

Although many deals have been mooted, at prices around half face value for the senior debt, few trades have been completed, one New York based dealer said.

Estimates were that about Pounds 20m to Pounds 30m of the Pounds 1.05bn of senior debt had been sold.

The company said it had not been notified of any debt assignments. Buyers could, however, purchase a 'sub-participation' in a loan which would mean the original bank would still be regarded as the lender.

One banker involved in the refinancing talks said that anyone buying the debt was taking a risk since the form of the restructuring was still not agreed. An investor buying a sub-participation would not even get a 'seat at the table' in the talks.

Bankers said the Isosceles talks were progressing and they hoped to agree the refinancing in principle by the end of the month.

Isosceles has a standstill agreement with its banks until May 28, though one said 'this could always be extended'.

Isosceles GB United Kingdom, EC P5411 Grocery Stores COMP Company News FIN Company Finance P5411 The Financial Times London Page 10 237
UK Company News: Heywood sale lifts share price 53p Publication 930313FT Processed by FT 930313 By ANDREW TAYLOR, Construction Correspondent

SHARES OF Heywood Williams rose 53p to 239p yesterday on news that the company was selling the part of its glass distribution business which supplies the UK construction industry.

According to Heywood 59 per cent of its sales will continue to be generated by the building industry despite the purchase of the largest part of its UK glass division by Pilkington.

Heywood also announced that, including the business to be sold to Pilkington, it made a pre-tax profit of Pounds 5.5m in 1992, a decline of 71 per cent from Pounds 19.2m in 1991.

Despite a fall in earnings per share to 1.7p (17.4p) the company is maintaining its final dividend at 8p, making a same-again 12.5p total.

Heywood will continue to sell glass to the automotive industry accounting for another 33 per cent of sales. About 70 per cent of group turnover will remain in the UK, according to Mr Ralph Hinchliffe, executive chairman.

There will, however, be a distinct shift in the balance between sales of glass and those of plastic and aluminium - much of which is sold to the building industry for doors and window units.

Plastic and aluminium in future will account for about 63 per cent of sales compared with 37 per cent previously. Glass sales will shrink from 63 per cent to less than 40 per cent, said Mr Hinchliffe.

He said the group was getting out of underperforming businesses which would be better managed by an integrated glass manufacturer like Pilkington. This would allow the company to concentrate on more profitable operations.

Sales of aluminium and plastic extrusions, mostly for housing repair and maintenance, had risen by about 10 per cent during January and February compared with the first two months of last year. Sales in the US, after a record year in 1992, also remained strong.

European markets, however, remained under pressure due to the economic recession.

According to the group, the book profit of Pounds 54m on the sale of the UK glass business would, under FRS 3, provide a windfall gain of about Pounds 16m to pre-tax profits in the current year.

It would also leave the group with net cash of Pounds 65m which it planned to use to finance acquisitions to expand its remaining businesses.

Heywood Williams GB United Kingdom, EC P3442 Metal Doors, Sash and Trim COSTS Equity prices FIN Annual report COMP Disposals P3442 The Financial Times London Page 10 425
UK Company News: SmithKline Beecham suffers double blow Publication 930313FT Processed by FT 930313 By PAUL ABRAHAMS

SMITHKLINE Beecham, the Anglo-American drugs group, received a double blow yesterday.

First, a US food and drug administration committee refused to recommend Kytril, one of its most promising drugs. And secondly, a study was published suggesting that Seroxat, its anti-depressant which analysts believe could reach sales of more than Dollars 1bn (Pounds 700m), was no more effective than earlier and far less expensive medicines. SB's shares fell 21 1/2 p to 469 1/2 p.

The study, published in yesterday's British Medical Journal, analysed 58 trials to compare old anti-depressants called tricyclics with a new generation of anti-depressants called selected serotonin reuptake inhibitors (SSRIs).

These include SB's Seroxat, Eli Lilly's Prozac, and Pfizer's Zoloft.

The analysis suggested that SSRIs were no more efficacious than older and cheaper tricyclics. SSRI manufacturers have never claimed this, but have argued their drugs were more effective because they generate fewer side effects. This allows more patients to continue taking their medicines.

However, the study claimed that 32.3 per cent of patients on SSRIs dropped out of the clinical trials compared with 33.2 per cent on tricyclics.

SSRI manufacturers had previously claimed there was a 10 per cent difference in drop-out rates, said Mr Nick Freemantle, research fellow at the Nuffield Institute for Health at Leeds University and co-author of the study.

If that had been true, then the extra cost of SSRIs would have been money well spent. A tricyclic can cost only Pounds 1.43 for 30 days treatment, compared with up to Pounds 33.90 for an SSRI.

The only sales point left to the SSRIs was that they were less toxic than tricyclics, said Mr Freemantle.

About 400 suicides a year are related to anti-depressants, he added.

The study concluded that first line treatment of depression using SSRIs may greatly increase cost with only questionable benefits and that the drugs should not be routinely used as a first-line treatment for major depression.

In the US, the FDA's gastrointestinal advisory committee were unable to recommend approval of Kytril, because of potential carcinogenic and cardiovascular side-effects.

Mr Bob Bauman, SB chief executive, said the committee had not felt competent to comment on these issues. The drug is used to prevent nausea in cancer patients receiving chemotherapy.

'We are confident we can resolve these issues with the FDA,' he said. 'We have already satisfied 20 countries about the safety of this drug. There is no evidence in humans of carcinogenic side-effects.'

Kytril had worldwide sales last year of Dollars 55m. Glaxo's equivalent drug Zofran has been licenced in 63 countries and generated worldwide sales of Pounds 163m during the last six of 1992.

SmithKline Beecham GB United Kingdom, EC US United States of America P2834 Pharmaceutical Preparations TECH Products TECH Standards COSTS Product prices P2834 The Financial Times London Page 10 481
UK Company News: EFM Dragon bid forces change at Drayton Asia Publication 930313FT Processed by FT 930313 By PHILIP COGGAN, Personal Finance Editor

DRAYTON ASIA, the far eastern investment trust, is giving its investors a choice between a unit trust or a new split capital investment trust.

The proposals are designed to defeat an all-share bid from EFM Dragon, a rival trust.

Those who choose the unit trust, Invesco MIM's South and East Asia Growth Trust, will be able to realise their holdings for cash at about 98 per cent of the diluted net asset value of Drayton Asia.

The proposed split capital Asian investment trust will have ordinary shares, zero dividend preference shares and warrants. Investors will be able to choose between a package of the three or a combination of shares and warrants. The trust will be managed by Invesco MIM for a fee of 1 per cent a year.

Drayton said that the investment trust proposals offered investors between 101.5 and 102.3 per cent of its diluted net asset value, compared with 98.7 per cent under the Dragon offer.

Mr Ratan Engineer, the chairman of Drayton Asia said: 'With these proposals, shareholders and warrantholders will now have greater choice, enhanced flexibility, new opportunities for gearing and most importantly, better and certain value.

'On this basis, I strongly urge shareholders and warrantholders to continue to reject the Dragon share offer.'

EFM Dragon responding by saying: 'These proposals are complex, uncertain as to value and the timing of their implementation remains in doubt.'

Drayton Asia Trust GB United Kingdom, EC P672 Investment Offices TECH Products P672 The Financial Times London Page 10 273
UK Company News: Church rises 11% despite Canadian difficulties Publication 930313FT Processed by FT 930313 By CATHERINE MILTON

CHURCH & CO, the shoe maker and retailer, yesterday announced pre-tax profits up almost 11 per cent from Pounds 1.7m to Pounds 1.9m for 1992.

The improvement comes against a background of 'exceptionally difficult trading conditions', particularly in Canada, the company said. There, turnover increased by 11 per cent while operating losses grew to Pounds 455,000 (Pounds 54,000).

Mr John Church, chairman, said: 'The devaluation of sterling will help us because we are so heavily involved in the export game.'

The final dividend is held at 9.5p for a maintained total of 12.5p, uncovered by earnings per share of 12p (11.6p).

Group turnover increased 5.5 per cent to Pounds 68.9m (Pounds 65.2m) and operating profits were little changed at Pounds 3.16m (Pounds 3.17m). Net interest payable fell from Pounds 1.26m to Pounds 1.09m.

The group said it was pleased with the performance of its UK retail and manufacturing operations. Margins rose to 7.5 per cent (6.2 per cent) and turnover advanced to Pounds 49.2m (Pounds 48.3m). US losses rose to Pounds 88,000 (Pounds 15,000).

A Jones & Sons, Church's wholly-owned subsidiary, lifted pre-tax profits to Pounds 569,000 (Pounds 290,000). Turnover increased to Pounds 30.1m (Pounds 28.7m). The dividend is again 34.1p, from earnings per share of 37.6p (27.3p).

Church and Co A Jones and Sons GB United Kingdom, EC P314 Footwear, Ex Rubber P5661 Shoe Stores FIN Annual report P314 P5661 The Financial Times London Page 10 255
UK Company News: Disgruntled franchisees consider action Publication 930313FT Processed by FT 930313 By PAUL TAYLOR

Disgruntled franchisees have met to consider what action they can take after Mr Howard Hodgson, the former chairman of funeral parlour group, PFG Hodgson Kenyon International, called the receivers into his latest business venture.

Receivers were appointed early last week to Prontac, a year old franchise operation, which provides a computerised book-keeping and management accounts service to small businesses through a network of 85 franchised outlets.

Subsequently, Mr Hodgson called the receivers into Hodgson Securities, a holding company, after months of difficulties with trading companies in the group including Prontac.

The franchisees, who paid between Pounds 12,000 and Pounds 17,000 for a franchise package and then claim they spent many thousands of pounds more trying to secure a client base, were angry that they had been kept in the dark about the company's problems.

Over half of them met on Thursday to consider what action they should take. They claim that Mr Hodgson and his fellow directors failed to provide them with the marketing expertise, a computerised accounting package that worked, and the necessary support of a network of qualified accountants which they had been promised.

Prontac Hodgson Securities GB United Kingdom, EC P7291 Tax Return Preparation Services P6719 Holding Companies, NEC COMP Company News P7291 P6719 The Financial Times London Page 10 229
UK Company News: Clark board considers bids Publication 930313FT Processed by FT 930313 By PEGGY HOLLINGER

THE BOARD of C&J Clark, the family-owned shoe manufacturer riven by shareholder dissension, met yesterday to consider several bids for the company, believed to be pitched at between Pounds 150m and Pounds 160m.

A decision on which offer will be recommended by the board is expected to be announced in about two weeks, along with the group's annual results. These are expected to show a slight improvement.

One bidder is a consortium of investors including existing institutional shareholders and Electra Investment Trust. Other interested parties are believed to include FII, the UK footwear manufacturer, and Berisford, the food and property group.

Neither Berisford nor FII would confirm or deny involvement in the bid process. Electra was unavailable for comment.

Speculation has centred on offers of between 180p and 220p per share. At 200p, Clark's would be valued at Pounds 154m.

C&J Clark put itself up for sale in December following an acrimonious boardroom row over development strategy. The dispute was triggered by a bid approach from consultant Mr Colin Fisher and backed by Electra.

The four board rebels - led by Mr Lance Clark - who sought to unseat the chairman Mr Walter Dickson and director Mr James Power last year are expected to oppose a sale unless the price comes in at the top end of the range.

It is believed they want to retain family control of the business, but would be unable to refuse a high enough price.

The decision to put the company on the open market was part of a truce agreed with the rebels last October.

The bid process began in December when Clark's set up a committee to review offers. Clark's said the board had met five potential bidders. However, sources close to the tender said that only three bids had been tabled.

It is known that many members of the 500-strong Clark family, which controls 70 per cent of the private group, would be keen to sell their shares. Many of them, dependent for their livelihood on the company's dividend payments and hard hit by Lloyds' losses, were shocked when depressed trading and losses forced the group to slash the interim payout by 50 per cent.

In the six months to July, Clark recorded a Pounds 3.5m pre-tax loss on sales of Pounds 285.1m.

C and J Clark GB United Kingdom, EC P314 Footwear, Ex Rubber COMP Acquisition P314 The Financial Times London Page 10 419
UK Company News: Huntingdon shares fall 22% on profits warning Publication 930313FT Processed by FT 930313 By PAUL TAYLOR

SHARES IN Huntingdon International Holdings, the life sciences and engineering services group, fell by nearly 22 per cent yesterday after a profits warning and the announcement of a rationalisation of its US-based engineering and environment services group.

The shares closed 45p down at 163p.

Huntingdon said that trading conditions for the US companies were now even worse than when it announced its first quarter profits of Pounds 3.73m last month. It further reduced its profit expectations for the second quarter.

At the time of the figures announcement it blamed continuing weakness in the US economy and abnormal weather.

Huntingdon is closing 10 of the engineering and environmental services' 80 US offices 'as a result of a strategic review of the company's US businesses, and in the light of the continuing decline in some areas of the US construction and environmental markets.' The construction sector has historically contributed more than 50 per cent of the company's US revenues. The costs, estimated at Pounds 3m or 2.5p per share, will be taken as an exceptional charge in the present quarter, and is expected to result in an after-tax loss. In last year's second quarter pre-tax profits were Pounds 3.37m.

An improvement in US trading was not expected until a general revival in the economy reached the construction industry.

However the management said that the performance for the the rest of the year to September 30 should be ahead of last year, helped by the continuing strong performance of the life sciences group and the Travers Morgan consulting engineers.

Huntingdon International Holdings GB United Kingdom, EC US United States of America P8734 Testing Laboratories P6719 Holding Companies, NEC COMP Company News P8734 P6719 The Financial Times London Page 10 305
UK Company News: Tight cost controls help Forward Tech Publication 930313FT Processed by FT 930313

Tight cost controls in its sound and vision division enabled Forward Technology Industries to return to profit in 1992.

On turnover of Pounds 40.2m (Pounds 39.8m) pre-tax profits were Pounds 186,000, compared with losses of Pounds 872,000 which included exceptional costs of Pounds 253,000. Earnings per share were nil against losses of 2.4p.

Sound and vision operating profits were Pounds 862,000 (Pounds 42,000) whereas electronics fell to Pounds 460,000 (Pounds 601,000).

Forward Technology Industries GB United Kingdom, EC P3645 Residential Lighting Fixtures P3613 Switchgear and Switchboard Apparatus FIN Annual report P3645 P3613 The Financial Times London Page 10 113
UK Company News: 43% growth at ISA to over Pounds 3m Publication 930313FT Processed by FT 930313

For 1992 pre-tax profits of ISA International, the distributor of branded consumables for information processing equipment, expanded by 43 per cent to Pounds 3.04m, against Pounds 2.12m.

With turnover ahead 56 per cent to Pounds 119m the results were slightly up on directors' estimates given in January at the time of the Pounds 7m placing and offer in connection with the acquisition of CTS Svenska.

After year-end tax of Pounds 1.15m (Pounds 864,000) earnings per share are given as 6.45p (4.31p) while the dividend is lifted to 1.5p (1.365p) with a final of 1.018p.

ISA International GB United Kingdom, EC P508 Machinery, Equipment, and Supplies P5111 Printing and Writing Paper FIN Annual report P508 P5111 The Financial Times London Page 10 138
UK Company News: Headway interim deficit reduced Publication 930313FT Processed by FT 930313

Headway, the consumer and industrial goods specialist, reduced pre-tax losses from a restated Pounds 1.2m to Pounds 883,000 in the six months to December 31.

The company, however, budgets for a first-half loss as sales by its dominant garden furniture subsidiary, Aronstead, are heavily biased towards the final quarter.

Losses this time were struck after costs of Pounds 103,000 for the major reorganisation of Aronstead.

Turnover for the period was Pounds 10.05m (Pounds 11.11m) and losses per share were halved at 3.7p. The results have been prepared in accordance with FRS 3.

Headway GB United Kingdom, EC P251 Household Furniture FIN Interim results P251 The Financial Times London Page 10 123
UK Company News: Thomas Walker Pounds 71,400 in loss Publication 930313FT Processed by FT 930313

Thomas Walker, the Birmingham-based maker of metal smallwares, incurred a loss of Pounds 71,400 pre-tax for the six months ended December 31.

That compared with previous profits of Pounds 2,600 and was scored from a turnover of Pounds 1.7m (Pounds 1.73m). Losses per share emerged at 1.1591p (0.0535p) and the interim dividend is the same at 0.18p.

Thomas Walker GB United Kingdom, EC P3965 Fasteners, Buttons, Needles, and Pins FIN Interim results P3965 The Financial Times London Page 10 94
UK Company News: Cut in interest boosts Cussins Property Publication 930313FT Processed by FT 930313

Cussins Property Group, the residential property developer, reported profits of Pounds 740,000 pre-tax for 1992, against losses of Pounds 365,000. Turnover fell from Pounds 18.4m to Pounds 16.3m.

The main reason was a fall in interest charges from Pounds 2.21m to Pounds 657,000. The company said a large part of the comparable figure related to discontinued activities. Borrowings were also cut over the 12 months from Pounds 8.8m to Pounds 6.5m.

A tax credit of Pounds 733,000 (Pounds 150,000) helped earnings increase to 10.3p (losses 1.9p). However an extraordinary charge of Pounds 2.71m (Pounds 2.36m), including a full provision on commercial property, left the loss for the year at Pounds 1.24m (Pounds 2.58m).

Cussins Property Group GB United Kingdom, EC P1531 Operative Builders FIN Annual report P1531 The Financial Times London Page 10 148
UK Company News: KBL extends Brown Shipley bid Publication 930313FT Processed by FT 930313 By JANE FULLER

KREDIETBANK Luxembourg-eoise has extended its 30p-a-share offer for Brown Shipley Holdings by a week until next Thursday after adding acceptances of only 1.4 per cent to the 29.8 per cent of the equity that it already owns, writes Jane Fuller.

Since KBL launched the offer, which values BSH at Pounds 4.8m, on February 18, a potential rival has appeared. Guinness Peat Group, the UK investment vehicle for New Zealand entrepreneur Sir Ron Brierley, has taken a 22.3 per cent stake, paying 35p a share for the majority of it. BSH's share price closed at 43p yesterday.

GPG announced this week that it was contemplating making a full bid and asked for the same information as had been furnished to KBL.

KBL has stressed that its offer is the only one on the table.

Kredietbank Luxembourgeoise Brown Shipley Holdings GPG GB United Kingdom, EC LU Luxembourg, EC P6719 Holding Companies, NEC P6111 Federal and Federally-Sponsored Credit Agencies P6011 Federal Reserve Banks P6719 P6111 P6011 The Financial Times London Page 10 185
UK Company News: British Gas uncertainty behind Victaulic fall Publication 930313FT Processed by FT 930313 By ROLAND RUDD

UNCERTAINTY over the future of British Gas was behind Victaulic's 5.4 per cent fall in pre-tax profits for the year end to December 31.

Profits at the pipes and fitting maker fell from Pounds 14.32m to Pounds 13.55m on reduced sales of Pounds 101.2m (Pounds 114.8m).

The company's main market with British Gas has suffered from the uncertainty over the future structure and ownership of the pipeline network.

Mr David Stewart, managing director, said British Gas had cut back on all discretionary spending on the network unless there was a pay-back within a year.

'There has also been a squeeze on costs because of the pricing formula on domestic gas.'

Mr Stewart believes the uncertainty will continue after publication of the Monopolies and Mergers Commission report into the future of British Gas. 'I do not think we will see any benefits until 1994' said Mr Stewart.

In the group's other main market, there was a reduction in the level of refurbishing distribution mains in the water industry. However, the company benefited from the increased penetration of the market by polyethylene pipe.

Lindapter International, which sells and designs specialised construction products, was bought from the receiver of Henry Barrett Group for Pounds 4.8m.

The group still ended the year with net cash of Pounds 6.2m.

Earnings per share fell to 20.3p (21.25p). The final dividend is increased to 5.3p (5p) giving a total of 7.8p (7.35p).

Victaulic GB United Kingdom, EC P3498 Fabricated Pipe and Fittings FIN Annual report P3498 The Financial Times London Page 10 273
Fortune favours the big: Alan Cane on the effects of a computer price war Publication 930313FT Processed by FT 930313 By ALAN CANE

Compaq, the personal computer manufacturer, cut the cost of its products in the US this week, signalling another round of blood-letting in a price war which is devastating the industry.

Victims include comparatively well known names like Everex of the US, now protected by the provisions of the US bankruptcy code.

By the end of the year many smaller suppliers are expected to find themselves in equally dire straits, leaving the pc business essentially in the hands of the industry giants - IBM, Compaq, Apple and Dell.

Computer buyers, on the other hand, have never had it so good. A colleague, seeking an economical computing package to handle the business of his local parish, was quoted Pounds 1,760 for a powerful pc complete with ink jet printer and office software. Over two weeks, the price was reduced by Pounds 200.

In the US, the cheapest of Compaq's pcs now sells for Dollars 1,100. In the UK, Vtec, a supplier from Hong Kong, sells a similar machine with sophisticated software for Pounds 1,099. Prices for machines of equivalent power would have been over Pounds 5,000 only a few years ago.

Industry ob-servers are not yet decided whether such price cutting can continue. Some argue that it is unrealistic to expect prices to fall further, but that additional features will be included at the same price. Software, for example, can be included as part of the deal. Sold separately, the Lotus software included with Vtec's Pounds 1,099 package would cost the customer about Pounds 700. Vtec is able to offer such a deal because, for substantial volumes, software can be bought from software suppliers very cheaply.

Other analysts suggest that at least two more rounds of cuts equivalent to a further 25 per cent decline in prices can be expected.

In the short term, however, further falls are unlikely in the UK, where the fall in the value of the pound is already forcing some smaller pc manufacturers to raise prices.

But over the next few years, for the international market as a whole, the most likely outcome is that the pace of price cutting, running at some 40 per cent a year, will slow sharply but that prices will continue to fall.

The decline in prices is already prompting a shift in the balance of power in the industry. In particular, the success of 'no-name' clone makers, is being reversed. No-name companies, manufacturers with little track record in the computer business, had been taking market share from established suppliers, selling copies of IBM's standard design at a substantial discount. Vobis of Germany, for example, grew from nothing to take 4 per cent of the European market last year, selling 368,000 machines, according to the market consultancy InfoCorp.

The reversal of the trend can be dated to June 15 last year when Compaq, world leader in high-performance pcs, launched a range of machines priced only slightly higher than the no-name competition.

Given the choice between a machine from an anonymous manufacturer and a Compaq for only a few dollars more, customers opted enthusiastically for the branded product. Compaq, found itself unable to meet orders. 'We thought demand might double,' says Mr Joe McNally, managing director of Compaq's UK subsidiary. 'In fact it quadrupled and at one stage you had to wait six to eight weeks for delivery.' Compaq's initiative was swiftly matched by IBM, which launched its own low cost 'Value Point' computers.

The market has been boosted as a result. According to Mr Gordon Curran of InfoCorp, most pc dealers in Europe, with the exception of the UK, saw sales in the first six weeks of the year increase by about 10 per cent compared with the same period last year.

Availability has become an important new consideration; many manufacturers failed to anticipate the demand for new, cheaper products and found themselves short of stock. The problem has been exacerbated by shortages of components, including flat, liquid crystal screens for laptop computers and some varieties of the Intel microprocessor chip at the heart of the majority of pcs.

Clone makers are being squeezed from two directions. From one side, they are finding it difficult to meet the challenge of the big brands now their price advantage has been pared away.

From the other, unless they have a strong relationship with Intel and other suppliers, they will be forced to buy critical components on the open market. A high-performance chip which a large manufacturer can buy in bulk at Dollars 60 a piece could cost Dollars 100 to Dollars 500 a piece in the market, if it can be obtained at all.

It all adds up to a grim outlook for clone manufacturers. They will see their bigger competitors increasingly regain control of the market for both sophisticated personal computers able to take the place of minicomputers and for low-cost systems, which will be bought by large organisations, small businesses and individuals for home use.

It is no coincidence that Digital Equipment, the world's largest minicomputer maker, is redoubling its efforts in pcs with the aim of being one of the world's five top suppliers by 1995. Nor is it surprising that Olivetti, Europe's biggest pc manufacturer, is preparing to launch a new range of machines with which it hopes to steal Compaq's thunder. Mr Corrado Passera, Olivetti managing director says: 'Price war is the name of the game and we are ready to play it.'

US United States of America GB United Kingdom, EC P357 Computer and Office Equipment COSTS Product prices MKTS Market data P357 The Financial Times London Page 9 953
Letter: Liberal Democrats show consistency on Maastricht Publication 930313FT Processed by FT 930313 From Mr CHARLES KENNEDY MP

Sir, Your leader 'Major must persevere' (March 10) is wrong to accuse the Liberal Democrats of having become 'shameless opportunists' over the progress of the Maastricht Treaty ratification legislation.

We have been principled and consistent throughout. Last November we supported the government over the 'paving motion' debate; subsequently, unlike the Labour Party, we have been willing to vote with the government over key procedural votes which have made possible the passage of the Bill. In several of these divisions our votes have been essential to secure progress.

We have made clear from the outset our ambition to see Maastricht improved in two particular respects - viz, reversing the UK opt-out over the social chapter and winning greater institutional democracy at all European levels. Monday's vote was consistent with the latter objective.

The real 'blame for delay' rests with a prime minister who has been too timid for too long in seeking to face down his rebels. This week's setback is a failure of coherent Tory government, not constructive Liberal Democrat opposition.

Charles Kennedy,

House of Commons,

London SW1A 0AA

GB United Kingdom, EC P8651 Political Organizations P9721 International Affairs CMMT Comment & Analysis P8651 P9721 The Financial Times London Page 9 218
Letter: Cost of marketing PEPs inevitable - as is cost to clients Publication 930313FT Processed by FT 930313 From Mr S M C KELLAND

Sir, Philip Coggan ('The high costs of 'good' advice', March 6) examines three PEPs recently launched by Fidelity, M&G and Cazenove and concludes that M&G 'is not being greedy' with its high charging structure - it's just that it has to pay commission to intermediaries.

You may think it odd then that M&G still attracted more money directly from the general public than Cazenove with much lower charges. The reason is that M&G had a much larger marketing campaign to promote its PEP and the costs are of course borne by the client. There is no point in launching a new product unless people buy it: therefore, unless a company like Cazenove can promote its product more cheaply through favourable press comment or existing discretionary clients then it has to advertise, direct mail or pay commission to intermediaries.

His argument that intermediaries should recommend Cazenove over M&G on a pure charging structure is absolutely right. However, he fails to mention that if we did then by the time our fees had been removed the client would be in exactly the same situation. After all, we have to pay for our own marketing costs as do M&G and Cazenove.

Mr Coggan states that the FT would much rather see fee charging financial advisers and I can assure you that I would as well. However, the average member of the public is still not ready to pay fees in the same way that they do for accountants and solicitors.

S M C Kelland,

Kelland and Partners,

6/7 Litfield Place,

Clifton, Bristol BS8 3LX

GB United Kingdom, EC P6371 Pension, Health, and Welfare Funds CMMT Comment & Analysis P6371 The Financial Times London Page 9 305
Letter: Discrimination is a disgrace Publication 930313FT Processed by FT 930313 From Mr ONESIMO ALVAREZ-MORO

Sir, Re Adriana Pulido's defence of the Venezuelan Embassy's lunches at the Garrick (Letter, March 11), it is nice of the Garrick to do women the favour of accepting their presence, when it sells space for special occasions. Nevertheless, the discrimination against women which the Garrick represents is a disgrace. Neither Ann Coffey, the Labour MP, nor the Venezuela government, should be seen grovelling to the Garrick. Onesimo Alvarez-Moro,

Pontejos 2, 2 puerta 6,

28012 Madrid, Spain

GB United Kingdom, EC P5812 Eating Places CMMT Comment & Analysis P5812 The Financial Times London Page 9 109
Letter: Taurus the victim of unclear objectives Publication 930313FT Processed by FT 930313 From Mr DEREK H BROOME

Sir, The Taurus fiasco ('Stock market chief quits over Taurus', March 12) shows the folly of trying to implement complex information technology projects without clear objectives related to requirements of the end customer.

In this case vested interests, particularly registrars with jobs on the line, appear to have been most in mind. Any first year computer student knows the problems involved in splitting up databases without real need. William of Ockham had it right first time - Keep it Simple, Stupid]

Last July we changed our bank, and produced 30 or so unnecessarily complicated transfer forms on our own computer for the appropriate registrars: we are still fielding payment errors. Separate registrars are redundant in such a system; the whole process should be centralised and payment instructions altered on the authority of the registered beneficiary without the need for all trustees to sign.

National Savings are much better organised and far less costly and bureaucratic, and we had few problems with other government departments.

Smaller private investors without their own administrative back-up should steer clear of the stock market - with or without Taurus.

Derek H Broome,

Potters' End,

Mears Ashby,

Northampton NN6 0DZ

GB United Kingdom, EC P6231 Security and Commodity Exchanges CMMT Comment & Analysis P6231 The Financial Times London Page 9 231
Still asleep after the wake-up call: One year after the LA riots, there is anger at the government's inadequate response Publication 930313FT Processed by FT 930313 By GEORGE GRAHAM

A year ago, South Central Los Angeles burst into arson, looting and killing after the surprise acquittal last April of four white police officers accused of brutally beating Mr Rodney King, a black motorist.

Last week, in a federal courtroom a few miles away in downtown Los Angeles, Mr King took the witness stand in a second trial of the same officers on slightly different charges.

It is scarcely surprising that city officials are nervous about the outcome of the case, and of the imminent trial of the four black men who attacked Mr Reginald Denny, a white lorry driver who found himself in the middle of the riots last year.

But some in Los Angeles's diverse and divided communities almost wonder if they need another riot, so inadequate has been the response from government, at any level, to six days of mayhem that left 42 people dead and 700 businesses burnt to the ground.

'The Los Angeles riots were supposed to be a wake-up call. I am beginning to be afraid that people have put it on snooze control,' says Ms Dolly Gee, a labour lawyer active in the Asian-American community.

Much of the attention in the days after the riots subsided focused on a private sector initiative, Rebuild LA, set up by Mayor Tom Bradley under the leadership of Mr Peter Ueberroth, who organised the 1984 Los Angeles Olympics and whose reputed Midas touch raised high expectations.

Rebuild LA's leaders acknowledge that visible results have come slower than many in the community would have liked.

'We call ourselves Rebuild LA and people say: how come you haven't rebuilt the place on the corner,' says Mr Barry Sanders, a senior partner with the Los Angeles law firm of Latham & Watkins and one of Rebuild LA's co-chairmen.

Rebuild LA has cajoled well over Dollars 300m of investments out of companies in the Los Angeles area and beyond; Shell, for example, succumbed to its persuasion to rebuild its burnt petrol stations.

But Rebuild LA itself merely emphasises to many the abdication of responsibility by government.

'Most of the strategy and a great deal of the commitment is coming from the private sector, which is marvellous, but it has to be matched by serious legislative reform,' says Dr Kathleen Connell, an academic and investment banker who chairs Rebuild LA's business investment task force. Community activists have for years criticised the federal government for its failure to come to the aid of the struggling inner cities. But what is most striking today is the extent to which their anger is now shared by businessmen, who never before came closer to South Central than a concert at the Los Angeles Coliseum.

'It is most disheartening. Everybody says this was the worst riot in the history of American and what has the government done about it? The city has done nothing, the state has done nothing and the federal government has done nothing,' complained a senior executive at one big Los Angeles company.

The riots came at the worst possible time for government to respond. Even in the years of rapid economic growth in the 1980s, the inner city stagnated. With the recession, deeper and longer in California than any other state in the US, incomes have declined and unemployment has risen. As a result, more than 18 per cent of the citizens of Los Angeles now live in poverty.

But the recession also dried up tax revenues, forcing cuts in public expenditure. Governor Pete Wilson proposes to cut state spending by 11 per cent this year, with education, health and welfare services hardest hit.

'Just the time you need government to respond coincides with the time they don't have the resources,' says Mr Sanders.

But 'we would if we could' no longer cuts much ice with the many Angelenos who see an abject failure of political will at all levels of government: Washington playing election year games with an urban aid bill that never passed into law, Sacramento paying its bills with IOUs in a two-month budget deadlock, and Los Angeles plunged into a political vacuum with the retirement of Mayor Bradley after 20 years in office.

Beneath their anger and frustration many Angelenos still believe their city has, despite all, a bright and prosperous future. Some of the most optimistic are the new immigrants who continue to flock to the city from Asia and Latin America. The nagging doubt remains, however: is this sprawling metropolis, its 9m inhabitants divided by language, culture and income, now too big to be governable?

Moves to break up the Los Angeles School District are already gaining ground, and a few brave souls have even suggested dissolving the city itself.

Los Angeles's borders defy logic. From its centre 15 miles inland, the city has thrown out tentacles, reaching south along a narrow, 20-mile corridor to its harbour and encircling the independent cities of Beverly Hills and Santa Monica to the west. In 1918 it swallowed whole the San Fernando valley to the north, as a by-product of a grandiose scheme to divert the waters of the Owens River, 250 miles away on the other side of the Sierra Nevada.

Los Angeles's city charter, too, is a historical relic: a well-intentioned reform from the 1920s which has led to administrative chaos.

'The central weakness of the charter, of which we are daily reminded, is that its extreme vigilance in protecting citizens from potential abuses of power makes the exercise of effective power impossible,' says Ms Xandra Kayden, a prominent advocate of charter reform.

The city council has only 15 members, each of whom holds de facto veto power over affairs in his or her own district. This leaves the mayor as the only elected official with a city-wide perspective. But the mayor's power is diluted and shared with 51 semi-independent commissions, running everything from the animal shelters to the airport.

'I would rather give birth to a porcupine backwards than become the mayor of Los Angeles,' said Mr William Mulholland, the engineer who, as head of Los Angeles's water department from 1886 to 1928, laid the foundations for the city's development.

This did not deter 52 people from announcing their candidacy to succeed Mr Bradley, although only 31 of them have qualified for the April 20 ballot.

Most proposals for reforming the city's government would concentrate more power in the hands of the mayor, enlarging the council, weakening the commissions and giving him the power to sack department heads.

A strong new mayor, even without such reforms, could exert personal leadership, as many argue Mayor Bradley did, at the beginning of his two decades in office. But for the moment, that leadership is not evident.

Some community activists, however, see a silver lining to the government's inactivity. In particular, it has spurred residents to take matters into their own hands in a somewhat perverse form of the 'empowerment' beloved by politicians from right and left. One encouraging sign was the truce declared by leaders of the Crips and the Bloods, two of Los Angeles's most notorious gangs, who also demanded more funding for schools, better street lighting and sanitation, and a thorough overhaul of welfare programmes. 'After the riots, people now have less tolerance for neglect,' says one Los Angeles council aide, noting a surge in demands for proper street cleaning.

Will that agitation get the streets cleaned and lit? The answer may help determine whether Los Angeles will succumb to its welter of economic, racial and social problems, or develop into the vibrant metropolis that many of its inhabitants believe it can still be.

US United States of America P9532 Urban and Community Development P8399 Social Services, NEC CMMT Comment & Analysis P9532 P8399 The Financial Times London Page 9 1321
Letter: Not so crazy about it either Publication 930313FT Processed by FT 930313 From Mr PETER J TIMMONS

Sir, My sincere thanks to Malcolm Rutherford, who has restored my faith in drama critics. He alone was not caught by the hype surrounding the opening of Crazy for You, and gave the only honest review I have read of this lamentable show which, for some strange reason, seems to be receiving considerable backing from Radio 2. Is this really the purpose of Britain's national radio station?

Peter J Timmons,

Wealden House,

Brightling,

Robertsbridge,

E Sussex TN32 5HJ

GB United Kingdom, EC P7922 Theatrical Producers and Services CMMT Comment & Analysis P7922 The Financial Times London Page 9 115
Governor throws down the gauntlet: Patten's decision to proceed with democracy legislation has shocked China Publication 930313FT Processed by FT 930313 By SIMON HOLBERTON and EDWARD MORTIMER

For the Chinese leadership sequestered in Zhongnanhai, Beijing's Kremlin, the decision by Governor Chris Patten of Hong Kong to proceed with publication of his democracy legislation must have been profoundly perplexing.

Previous governors, who were senior Foreign Office officials, and their masters in Whitehall had always taken care to clear in advance any changes in Hong Kong's political arrangements. Beijing, as Mr Qian Qichen, China's foreign minister, confided recently to a group of sympathetic Hong Kong politicians, has always known that if it stands firm Britain will back down. When Britain did show signs of independence, it had to be punished, Mr Qian said.

Beijing's leadership was already seriously angered by what it saw as Mr Patten's insubordinate behaviour last October when he announced the outline of his proposals for Hong Kong's 1995 elections - the last to be held before the Chinese takeover in 1997. They disliked both his ingenious exploitation of loopholes in their own Basic Law for Hong Kong to introduce a much broader franchise than they had envisaged, and the fact that they were not first consulted.

Their 'punishment' of Mr Patten was played out in November and December when China threatened the validity of contracts which span the 1997 transfer of sovereignty. Beijing also attacked Jardine Matheson, the trading house, and tried to scare Hong Kong's civil servants by raising questions about their future pension entitlements. This produced a sharp fall in the stock market and business antagonism towards Mr Patten, but not a British back-down.

Earlier this year China changed tack, perhaps thinking that where sabre-rattling had failed diplomacy would succeed. Informed by Mr Douglas Hurd, Britain's foreign secretary, on February 6 that Mr Patten was about to proceed with publication of a bill to give effect to his proposals, China's Mr Qian replied, one day before the February 12 deadline, that Beijing was prepared to talk.

During February and this month, Mr Patten put off publication of his bill on four successive occasions as London and Beijing wrangled about the precise terms on which talks could be held. The stock market went up again while the hearts of Hong Kong's liberals - supporters of Mr Patten's reform package - slowly sank.

By last weekend some of those who had been among Mr Patten's most vocal supporters were suggesting that he was just another British governor who would end up dancing to Beijing's tune.

But yesterday Mr Patten delighted them and must have shocked the decision makers in Beijing, by showing that he did after all have what he likes to call a 'bottom line'. Put simply, he and the British government were not prepared to let China dictate the composition of his team for the proposed negotiations between the two sides.

China refused to lift its objection to two ethnic Chinese Hong Kong civil servants being part of the team, one of whom already has participated on numerous occasions in Anglo-Chinese talks. China also sought to amend a previously agreed text of the announcement the two sides would have made once the date of any talks had been fixed.

As one senior British official suggested yesterday: 'The Chinese may have got trapped by a device which was shoved into the negotiations by some of those who did not want talks, and then suddenly found themselves confronted by problems of face in scrapping that device.'

The most likely candidate for the role of spoiler is Mr Zhou Nan, director of the New China News Agency, Beijing's unofficial embassy in Hong Kong. Mr Zhou's deputy said yesterday Mr Patten's announcement would 'make talks impossible'. Britain, he said, had 'ruined the chances for talks and it showed Whitehall had no sincerity'.

The first reaction from Beijing itself echoed the point about lack of sincerity, though attributing it to the governor personally, but merely added that it 'creates difficulties' for the resumption of talks. This may reflect the more moderate line associated with Mr Lu Ping, head of the Chinese government's Hong Kong and Macao Affairs Office.

If it is true, as some in the Hong Kong government think, that most of the principal Chinese decision makers are anxious for an agreement with Britain, they could be expected after a brief display of indignation to return to the quest for talks. Mr Patten stressed in his speech yesterday that he remains ready to talk to China.

The same British official admitted, however, that it might be easier for the governor to carry public opinion with him if his proposals were made more acceptable to China in the course of debate in the Legislative Council (LegCo), than if he has to persuade the council to accept amendments agreed in secret Anglo-Chinese talks in Beijing.

Mr Patten's preference would be to satisfy the calls from local liberals, such as Mr Martin Lee, leader of the United Democrats, to introduce his bill into LegCo sooner rather than later. In the normal course of events a bill published in the gazette - as Mr Patten's democracy bill was yesterday - would be tabled in LegCo the following Wednesday. Mr Patten refused yesterday to commit himself to such a tight timetable, but his officials indicated he would be unlikely to wait more than a few weeks for a favourable Chinese response.

If such a response is forthcoming it will indicate that China has recognised the need to soften its position in response to Britain's tougher stance. But it is equally likely that Beijing will conclude that such a 'provocation' calls for even sterner punishment.

In this case Hong Kong could be in for a very rough time over the coming months, as investor confidence would be shaken. Important projects, such as the HKDollars 175bn (Pounds 15.8bn) airport and the further development of the colony's container port, would have to be kept on hold.

Mr Patten is convinced that the people of Hong Kong want a chance to participate in shaping their political future. Their representatives in LegCo will have to evaluate the consequences of this unprecedented contest of wills between an economically resurgent but politically uncertain China and a Britain, in economic and imperial decline, which belatedly has decided to stand up.

HK Hong Kong, Asia CN China, Asia GB United Kingdom, EC P9611 Administration of General Economic Programs P9721 International Affairs GOVT Government News P9611 P9721 The Financial Times London Page 9 1087
Letter: Bill and Hillary, maybe - but not President Chelsea Publication 930313FT Processed by FT 930313 From Mr ABDULRAHMAN ABDI

Sir, Michael Thompson-Noel, whose columns I enjoy, quotes himself (Hawks & Handsaws: 'A word from your clutter buddy,' February 27) as telling President Clinton: 'You could be in the White House for eight years. After that, Hillary Rodham Clinton could be president, followed by Chelsea (who will presumably rule the country from 2008 to 2016). We are talking 2016, William.'

While it is quite possible that Clinton may get re-elected in 1996 and that his wife, Hillary, may also run the White House for two terms after he leaves office, it will be impossible for Chelsea to get elected in 2008] Why? Because she is only 13 years of age and will be 29 by the time both her father and her mother served two terms each and left office. And our constitution does not allow the election of 29-year-olds to the Oval Office. It says: 'Neither shall any person be eligible to that office who shall not have attained the age of 35 years'.

Mr Thompson-Noel, who told us that he paid a visit to California and read light material (like The New York Times and a Joseph Wambaugh novel) should have picked up a cheap paperback copy of the US Constitution.

Abdulrahman Abdi,

6022 Westchester Park,

College Park,

Maryland 2074, US

US United States of America P91 Executive, Legislative and General Government CMMT Comment & Analysis PEOP Personnel News P91 The Financial Times London Page 9 257
Leading Article: Politics and the markets Publication 930313FT Processed by FT 930313

THE DAMAGE inflicted on John Major's government by the anti-Maastricht Tory rebels is real enough. But it is questionable whether anyone outside Britain is giving it much thought. This is a month in which momentous events are unfolding across the developed world.

In the US and Germany, important battles are being fought over fiscal policy. The political complexion of France is about to change in the forthcoming election in ways that could have fundamental importance for the exchange rate mechanism and for Europe itself. Italy is being turned upside down by efforts to purge a corrupt political system. In Japan, also beset by scandals, the state of a shaky banking system will be clarified when the fiscal year ends on March 31. It is the level of the stock market on that date which will dictate in good measure the value of bank capital.

More disturbing still is the growing uncertainty over the fate of Mr Boris Yeltsin. Yesterday's nervousness in continental European markets was prompted partly by the fear of what might happen if he goes. Current assumptions about the appropriate level of defence spending in the US and Europe would have to be revised, with obvious consequences for fiscal policy. This thought will no doubt be at the back of the minds of representatives of the Group of Seven, as they consider what to do about Russia this weekend.

So political instability is playing a larger role in world capital markets. Once again, the nervousness of British equities yesterday over next week's Budget has echoes elsewhere, especially in Germany. Negotiations between the German government, the opposition and the federal states over the post-unification solidarity pact continue to drag on against a background of declining economic activity, falling corporate profits and labour unrest. With many forecasters expecting economic declines this year of between 1 and 1 1/2 per cent, the fiscal pressure will increase so long as the haggling persists.

Nationalism in Europe

Also disturbing were the advances made by extreme right republicans in the local and city elections in Hesse last weekend. So far, the lack of a plausible leadership has meant that the nationalist tendency in Germany has seemed less threatening than it might. But nationalism in Europe is set to become more dangerous as long as the European economy remains stagnant.

The key to recovery in Europe lies largely in the hands of the Bundesbank. Members of the Bundesbank council will once again be under considerable political pressure to reduce rates at their meeting next week, not least because the French franc has been sinking within the Exchange Rate Mechanism. The Bank of France was rumoured to have intervened yesterday to support the franc, and may well have to intervene throughout the period of political uncertainty. The franc could continue to pose problems for Europe's central banks once the elections are out of the way, since the anti-European Gaullists in Mr Jacques Chirac's party will be a more potent force in the National Assembly after the socialist defeat which seems inevitable.

There are limits on what the Bundesbank can do to accommodate the franc, but there is a growing feeling in the markets that it will wish to cut interest rates again in any case for its own domestic reasons. With the German fiscal argument unresolved, the cuts may come more slowly than the rest of Europe now hopes. In the meantime, the French banking system is wilting under the pressure of high short term rates.

Buoyant equities

With so much uncertainty around, it might seem odd that several of the world's equity markets have been buoyant for so long. The easiest case to rationalise is Japan, where buoyancy in part reflects the flood of public pension fund money that is being pumped into the market before the fiscal year-end in order to help the banks. The movement has become self-feeding, since investors are aware of the importance of a successful market rigging operation to the government. The question is whether the rally will survive into the next fiscal year.

In the United States, market buoyancy appears to reflect extraordinary confidence in President Clinton's budget programme. Despite offering a package of measures that will still leave a substantial structural budget deficit, he has prompted a euphoric rise in bond prices that has also lent support to equities. It may be overdone. Yet the present level of prices also derives backing from a more fundamental factor, namely the penalty incurred by investors who abandon equities or long-dated bonds for low yielding cash and money market instruments.

The same thing applies to the UK, where the yield curve has steepened since last autumn, with short term rates substantially below long rates. That is the best reason for thinking that, even if there are short term setbacks arising from political uncertainties around the world, the British market is still in a bull phase.

XA World GB United Kingdom, EC US United States of America RU Russia, East Europe FR France, EC JP Japan, Asia P9721 International Affairs P6231 Security and Commodity Exchanges P9611 Administration of General Economic Programs CMMT Comment & Analysis P9721 P6231 P9611 The Financial Times London Page 8 873
Man in the News: Textbook leader with a legal brief - Ruslan Khasbulatov / John Lloyd on Russia's parliamentary speaker Publication 930313FT Processed by FT 930313 By JOHN LLOYD

This was the devil's work,' said Mr Ruslan Khasbulatov this week of the agreement he had signed with President Boris Yeltsin three months ago, permitting a referendum on the constitutional division of powers in Russia. In three increasingly febrile days in the Congress of People's Deputies, the parliamentary speaker has undone that work - and set devils running in the country whose final destination he cannot know.

'Ruslan Khasbulatov intends to concentrate all power into his own hands,' said Mr Vyacheslav Kostikov, Mr Yeltsin's acid press secretary yesterday. 'We are on the brink of 'All Power to the Soviets'.'

'Khasbulatov wants to retire us,' said a government minister on Thursday after the speaker had threatened to cut off ministerial salaries. 'He should be thinking about his own pension soon.'

The man who occupies the parliamentary chair embodies many of the contradictions which run through Russia: a state which has shed an ideology of communism while being unable to give up its habits and systems, so ingrained have they become. Speaking in the name of the popular will, he has a popularity score (in the most recent poll from the Public Opinion Research Centre) of only five, less than a quarter of the much-diminished 22 scored by Mr Yeltsin.

Standing on the grounds of democratic order, he owes his position to a Soviet-era constitution and his authority over the parliament to the pre-democratic factional soup which is its politics. Seeking to embody Russia, he is a Caucasian from Chechnya, an autonomous republic which has declared its independence from the motherland and which has disowned him as one of its representatives.

There runs this same division in his career. Born in Chechnya in November 1942 and deported during the war with many of his people to Kazakhstan for alleged collaboration with the Germans, Mr Khasbulatov grew up in poverty - 'but not moral poverty', as he writes in his recently published memoirs. He managed to enter the faculty of law at Alma Ata, then Moscow, universities, later switching to economics (Marxist, naturally, though he says he later became a convert to Adam Smith).

A rapidly rising career in the Komsomol (young Communist League) put him on that body's central committee; he taught at the Plekhanov Institute of Economics in Moscow in the late 1970s to 1990, when he was elected as a Russian deputy, representing Grozny, the capital of Chechnya.

Much of this was textbook Soviet man: the lad from the poor background rising to be a leader of society. Though he says he was early to question the orthodoxy of the party in which he did so well, he only began openly to criticise that orthodoxy from the perestroika period, when it was relatively safe to do so.

His breakthrough was in choosing to side with Mr Yeltsin when the latter became chairman of the Russian parliament in 1990 - a route that most other members of the parliament's leadership did not take, preferring to side with the harder-line communists. When Mr Yeltsin was elected president in 1991, Mr Khasbulatov became acting chairman, or speaker - a position in which he was confirmed after the August 1991 putsch.

In that putsch he showed, on his own and others' account, considerable bravery: remaining with Yeltsin and others in the White House when they believed (with reason) that an attack was being prepared upon them which they had no hope of resisting. This was the making of him, and of Mr Yeltsin, and many of the Russian leadership. He and they came out of the experience with huge prestige, and with an apparently vast will behind reform, including the radical economic reform for which he had long agitated.

Yet almost immediately afterwards, in that strange period of months in which the Russian government drifted inactively and frittered away its store of support, Mr Khasbulatov turned sharply against the government Mr Yeltsin appointed, especially Mr Yegor Gaidar, the then deputy prime minister who headed the economic reform team. 'Little boys who have lost their way' he called them early in 1992 after the liberalisation of prices. At intervals throughout the year, he blasted them, the IMF and the foreign advisers who were leading Russia to perdition. 'Competition,' he wrote late last year, 'cannot flourish in the present conditions.'

Over the past two years, the Supreme Soviets and the Congresses (the first is the small permanent form of the second) he has chaired have become more confrontational and critical of the government: time and again, government ministers, presidents' emissaries, even the president himself have been set before a bear pit of angry questions and derisive baying.

This is not the work of Mr Khasbulatov alone: indeed, there have been times when he has moderated it. Some of the deputies were always ideologically opposed: many more became so. Others are responding to the complaints of their hard-pressed electorates, frustrated by falling living standards and a collapse of their institutions.

Mr Yeltsin and his circle have made much of the parliament's origins in Soviet times. There is a good point in this, but it remains arguable whether a freely elected parliament would have been more, or less, amenable. What is sure is that it would have depended less on a speaker who is not particularly popular, but whose guile, skill and rhetoric wins cross-factional support.

The economic issue, however, has become secondary to the constitutional one: it has been at the centre of Mr Khasbulatov's concerns for some time. In his writings and speeches, he has increasingly come to see the presidency - and the figure of Mr Yeltsin himself - as at best potentially authoritarian. Parliament, by contrast, because of its 'open, public style of working', is a stabilising and democratising factor. 'Parliament protects the government from a possible slide into severe, authoritarian methods of rule.'

For Mr Yeltsin, by contrast, the imperative has been different: how, belatedly, to press through economic reform? The answer which has increasingly suggested itself to him is through strong presidential rule. But now he has been fought almost to a political standstill by Mr Khasbulatov's Congress.

Thus, this week, these two men confronted each other - past friends and comrades; both poor boys made good under two systems; both ruthless, calculating, bold and limited, at the head of rival and shaky coalitions of political, economic and clan interests.

Mr Khasbulatov, on his home ground, won. On the first day, reacting to Mr Yeltsin's clumsy hints about 'special measures', he lambasted the president for 'devaluing the existing constitution, destabilising the political situation in the country, even involving the army and the interior and security ministries'. Parliament, he insisted from the first, wanted compromise - but 'naturally all of this must be on the basis of the Russian constitution and the Russian constitution alone'.

He listened, sometimes nodding, as his deputy Mr Nikolai Ryabov told Mr Yeltsin that 'he cannot be regarded as someone who is the equal of the Congress: we have no problems with the current division of powers'. But it was on the second day, after speeches by Mr Yeltsin and Mr Victor Chernomyrdin, the prime minister, demanding more freedom of action and more power, that he let rip with apparently genuine fury.

The president's men were 'swaggerers before the microphones', the parliamentarians were honest workers. Venomously, he asked Mr Chernomyrdin who was boss in his cabinet, demanded the sacking of Mr Anatoly Chubais, the deputy prime minister for privatisation, threatened to dock ministerial salaries. Off the cuff, sarcastic, outraged, it was a rhetorical tour de force, a pointed contrast to a stumbling Mr Yeltsin.

Finally, yesterday, he saw the apparent climax of his efforts: the passing of a resolution which kills the 'devil's work', and puts the president's office at the mercy of the parliament. Yet he also has a confrontation on his hands (which he may not have wanted). Mr Yeltsin, determined on a referendum, has ended the unequal struggle and is set to bypass, even to destroy, Mr Khasbulatov's power base. Prolonging the session until today, the speaker warned his colleagues of possible presidential infractions of the constitution. The fight begins in earnest.

In it, both men fight for their political lives. Neither has anywhere else to go, and while Russian politics are theatrical to a fault - with all sides going to rhetorical extremes then often clawing back to the centre to paper over an abyss - there is now no route back for either one, save capitulation. The revolution in which both participated is choking its children. They cannot escape the coils of a system which winds itself around their actions, continuing an apparently indestructible life after its advertised death.

RU Russia, East Europe P9121 Legislative Bodies PEOP Personnel News CMMT Comment & Analysis Khasbulatov, R Parliamentary Speaker (Russia) P9121 The Financial Times London Page 8 1501
The chancellor's big day: Lamont faces mounting economic and political pressures as he finalises his Budget decisions Publication 930313FT Processed by FT 930313 By PETER NORMAN

Next Tuesday's Budget is shaping up to be a real cliffhanger. The pressures on the chancellor have grown, rather than diminished, as his big day has come closer.

The dilemmas facing Mr Norman Lamont would be sharp enough if the Budget were just about the economy. But this year's Budget will be a political occasion of high drama.

After the government's reverses over the Maastricht Bill, Mr John Major will be looking to the Budget to inject new purpose into his embattled administration.

Then there is Mr Lamont himself. He has survived against all the odds since sterling's enforced departure from the European exchange rate mechanism last September. He desperately needs a successful Budget if he is to fulfil his personal ambition of staying at No 11 Downing Street.

A month ago, it would probably have been enough for Mr Lamont to present the Budget as a low-key holding operation that would not upset the prospects for economic recovery and leave big decisions for the first unified taxing and spending Budget in November. But there has been a subtle shift in expectations since then.

As tentative signs of recovery have multiplied, sentiment among City analysts, Tory members of parliament and within the cabinet has swung towards a more radical approach to the UK's economic problems. Every new glimmer of hope about growth has emboldened the supporters of early fiscal tightening to bring the UK's growing public sector deficits under control before election deadlines loom.

Throughout, the Treasury has maintained a Sphinx-like silence. Although the chancellor and other Treasury ministers have been let out of pre-Budget purdah to comment on economic indicators when they offer hope, or in the case of Mr Lamont to host an informal gathering of his colleagues from the Group of Seven leading industrial countries in London, the secrecy surrounding the Budget has been unusually complete.

This may simply mean that the chancellor has, as is his wont, left decisions until the very last minute. But it may also reflect the complexity of this year's Budget judgment.

Rarely can a chancellor have been confronted with such a cacophony of advice as Mr Lamont in the past 10 weeks.

But the bottom line is that nobody has a clear and persuasive answer as to whether recovery is safely under way and can be sustained; whether bank base rates at 6 per cent are at the appropriate level; whether sterling, following its devaluation of about 15 per cent since September, is correctly valued or undervalued; how far the UK economy is operating below capacity and whether, in the event of recovery being maintained, it will run rapidly into the twin constraints of growing budget and current account balance of payments deficits.

With so much unclear about the economy, it is not surprising that there is even more divergence about the measures that Mr Lamont should announce.

Should he heed those who warn that recovery could be aborted by over-hasty tax increases that would cripple consumer or business confidence? Or, looking to the medium term, should he acknowledge that some of the Pounds 37bn of public sector deficit forecast for 1992-93 in the government's Autumn Statement is structural rather than cyclical and needs to be corrected?

Then again, what instruments should he choose if he takes the path of fiscal tightening? Will he be tempted to extend the range of value-added tax to zero-rated or exempt items, such as food, domestic fuel and power or newspapers and magazines? Or should the chancellor, by tinkering with income tax allowances, thresholds or mortgage interest relief, take back from those middle and upper income earners who still have jobs some of the gains they have made since September through the sharp drop in mortgage rates that has followed the fall in base rates from 10 to 6 per cent?

If he has been wise, Mr Lamont will have stood back from immediate problems and pressures and asked himself where he wants to take the British economy in the medium term. Although current uncertainties might tempt some to caution, next week's Budget offers a rare chance to complete the process of rebalancing economic policy started after the ERM crisis and prepare the UK to compete more successfully over the rest of the 1990s.

The chancellor will have examined the reasons why the recession in Britain has lasted as long as 10 quarters. If he has listened to the Bank of England he will have concluded that debt deflation - the corrosive process of falling asset values undermining enterprise financed on borrowed funds - has been the main culprit.

Mr Lamont will have asked what lessons he should draw from the near doubling in recession of the UK current account balance of payments deficit to Pounds 11.9bn last year from Pounds 6.4bn in 1991.

The rise of unemployment above 3m in January and the continuing heavy shedding of labour by manufacturers in spite of evidence that companies have withstood this recession in better financial shape than previous recessions will have coloured his judgment. So will the spread of recession to the UK's markets in continental Europe just as consumer demand in Britain may be recovering.

Mr Lamont should regard recent indicators of consumer revival warily. The recent growth of M0, the narrow money measure comprising mainly notes and coins in circulation, at above the government's 0 to 4 per cent target range, and this week's Confederation of British Industry report of further year-on-year growth of retailers' sales in February suggest recovery is taking hold.

But is a consumer-led recovery what Britain requires? Most of the nation's economic problems - the current account deficit, the country's small industrial base, the heavy indebtedness of families and the continuing toll of house repossessions - reflect too much consumption in the past.

So while nobody should expect the chancellor to stifle recovery, he will want his Budget to set the framework for future, more stable growth. That should mean a Budget for investment, industry and jobs.

If the foregoing analysis is correct, Mr Lamont's first priority will be to ensure that the present 6 per cent base rates can be maintained for an extended period. He may even seek scope for a further lowering of rates to allow the UK's indebted households and companies and battered banks to rebuild their balance sheets.

But low interest rates have to be earned. That means that the government must strengthen the credibility of its commitment to low inflation and its target of keeping underlying inflation in the 1 to 4 per cent target band announced last year.

Mr Lamont will have to pay particular attention to the mood on financial markets. So far, domestic and international investors have appeared relatively untroubled in the face of widespread expectations that the UK's public sector borrowing requirement (PSBR) could reach Pounds 1bn a week next year.

But markets are fickle. The City is expecting some good news about the borrowing requirement on Budget Day itself: recent polls of City analysts suggest they expect the PSBR for 1992-93 will be Pounds 35bn compared with the Pounds 37bn Autumn Statement forecast.

Most City investment houses expect the chancellor will ease the 'full funding' rule that at present prevents the government from counting purchases of gilt-edged stock by banks and building societies as contributions to financing the budget deficit.

Yet more than financial wheezes will be required if the markets are to give Mr Lamont their backing. To be sure of the freedom of manoeuvre he needs in monetary policy, he will have to produce a convincing plan to reduce the UK's budget deficit.

This suggests Mr Lamont will have to make a downpayment on deficit reduction next Tuesday. And if he is to fulfil the expectations of parliament and the nation, he will also have to help the unemployed and hold out hope of job creation, most probably through helping small businesses.

These goals are difficult to reconcile. But the chancellor has one card - low inflation - in his favour.

The UK's present lower than expected inflation rate could encourage the chancellor to freeze income tax allowances and thresholds, saving some Pounds 750m; increase by more than inflation some excise duties on tobacco, petrol and the vehicle excise duty and extend VAT to some goods and services currently uncovered. Low inflation could give the chancellor the excuse he needs to cut government spending.

But such a Budget would be a glum affair and unlikely to secure Mr Lamont's survival. Hence, speculation has grown that he may have something more spectacular up his sleeve.

With a tax system as complex as Britain's, Mr Lamont has scope to be bold and pull in revenue without raising the present income tax rates of 20, 25 and 40 per cent.

One option, with mortgage rates low, might be to prune mortgage interest relief or Miras. Limiting Miras to the 20 per cent tax band would cost households only Pounds 10 a month and yet be a big step forward to phasing out a system which distorts the economy. He might also turn the personal allowance - the amount which everyone can earn before paying tax - into a tax credit at the basic tax rate of 25 per cent rather than subtract it, as at present, from gross income in a system that benefits the 40 per cent tax payer.

Such steps would be painful for Tory voters - and could open the government to the charge of betraying the spirit, if not the letter, of the 1992 election campaign. But some of the revenue gained could be used to extend the 20 per cent tax rate beyond its present Pounds 2,000 limit, widen the tax-free personal allowance, or provide help to first-time home buyers.

In his previous two Budgets, Mr Lamont has proven to be a master of surprise. In 1991 he increased VAT to pay for a poll tax cut, and in 1992 introduced the 20 per cent tax band. These moves were dictated more by electoral politics than economic considerations.

This year he could again confound his detractors while placing the UK on a sounder footing for non-inflationary growth. If he succeeds, he may be singing in the bath of Number 11 Downing Street for longer than anyone expects.

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy ECON Economic Indicators CMMT Comment & Analysis P9311 The Financial Times London Page 8 1761
Is the economy showing any flickers of life?: With the Budget three days away, Financial Times reporters have taken the temperature of Britain to see whether economic recovery really is under way. There are some grounds for optimism but a good deal of uncertainty remains Publication 930313FT Processed by FT 930313 By MICHAEL CASSELL, NEIL BUCKLEY, JAMES BUXTON, CHRIS TIGHE, IAN HAMILTON-FAZEY, ROLAND ADBURGHAM, PAUL CHEESERIGHT and GILLIAN TETT

IT IS 17 months since Mr Norman Lamont, the chancellor, told his party faithful in Blackpool: 'The green shoots of economic spring are appearing once again.' One year ago, Mr John Major, the prime minister, assured an election campaign meeting in Nottingham: 'The recession will end when the election is over.'

Their premature optimism has haunted them ever since.

Next week, Mr Lamont presents his third Budget and risks derision if he is bold enough to claim that revival is under way. But, this time, there could be something in it. A clutch of figures published in the past few days suggest that the longest recession since the 1930s may be ending.

Housebuilders report sales rising by more than a fifth in the first eight weeks of the year. Registrations of new cars rose by 16 per cent in February, though only against the worst monthly sales figure since 1976.

The appetite for buying on credit also appears to be improving, with consumer borrowing rising in January to three times the level expected.

Some of the latest company results for 1992 have pleasantly surprised the City and have been accompanied by increasingly optimistic forecasts.

But there have been several false dawns. As Mr Joe Logan, managing director of Scotsman Publications, says: 'You get green shoots at this time of year. But you can also get five degrees of frost.'

The brighter his view of underlying economic prospects, the more prepared the chancellor will be to consider unpopular measures in his attempts to narrow the widening gap in government finances. The more fragile the economy remains, the less willing he will be to contemplate any measures capable of sabotaging recovery.

So as the chancellor fine-tunes his 'make-or-break' Commons statement, the Financial Times has sought to test the business mood of the nation to see if recovery is really under way and, if so, to what extent.

The first impressions are of a country which believes the worst really is over, that the economy has bottomed out. Parts of the north have escaped the harshest effects of the recession and report improving conditions. Mr Trevor Furlong, managing director of the port of Liverpool, says: 'We are coming out the other side.'

In the south, confidence has taken such a battering that signs of limited improvements in economic activity are treated with scepticism. Throughout the country, there is nagging uncertainty about what happens next.

Consumer confidence is hailed by politicians and industrialists as the all-important missing ingredient for recovery. So far, it remains in short supply. The position is encapsulated by Mr Ian Lawrie, a Nottingham department store manager: 'Trade is fragile, fickle, undependable but, tantalisingly, showing little glimpses of improvement.'

Not surprisingly, the outlook for employment - among the last beneficiaries of revival - remains generally bleak.

Manufacturing industry is slowly regaining its confidence. Express Engineering, a family-owned engineering business in Gateshead, says some orders are up three times on a year ago, most of them from UK companies planning to boost output.

Mr Christopher Moore, managing director of Rigby Maryland, a West Yorkshire wire manufacturer, reports his 'best January ever' with a good February to follow. More jobs are to be created.

Profits are another matter: 'Profitability - what's that word?' asks Mr Alan Armitage of Armitage Engineering in Washington, Tyne and Wear: 'The name of the game is survival. The nicest thing anybody in accounts could ever say to me is 'You've broken even'.'

A steady improvement in commercial activity is reflected in the volume of national telephone traffic. Both fixed and mobile telephone networks point to more domestic and business calls. There are more new connections and customers are spending more despite some cuts in charges.

Parts of the packaging industry are seeing signs of an upturn, but it is difficult to draw conclusions. Moreover, as the industry supplies much of what it produces to the food industry, it has been cushioned to some extent from the recession.

Mr John Cobring, marketing manager at United Glass, one of the UK's largest glass container manufacturers, said sales grew 1 per cent last year. But after a quiet January, sales in February were up 4 per cent on the previous February.

The housing market, which heralded the arrival of the recession, is also expected to lead the economy back to higher ground. Here, there are real grounds for encouragement.

Residential property markets are increasingly active and, most importantly, this time the trend appears as though it is being sustained. Builders are again selling and mortgage lending is rising, though prices may not respond for a long time. Mr Mike Jackson, chief executive of Birmingham Midshires Building Society says 'business is on the up', with mortgage offers in early 1993 tripling from a year earlier. Mr Jim Philbin of Norwich and Peterborough Building Society reports a big upturn in interest which has 'taken us a bit by surprise'.

Britain has been waiting so long for good news, it seems, that it might take some considerable time for evidence of any lasting upturn to sink in.

Main report by Michael Cassell with additional research by Neil Buckley.

------------------------------------------------------------------------ EMPLOYMENT ------------------------------------------------------------------------ SCOTLAND James Buxton ------------------------------------------------------------------------ 'There's more demand in Scotland for long-term contract staff in office clerical jobs and for industrial jobs, especially in assembly and manufacturing. The position in the last three months is significantly healthier than it was a year ago. Demand for manufacturing staff in the Scottish electronics industry was notably strong.' Kathy McDowall, Manpower regional manager, Scotland and Newcastle, Manpower employment agency ------------------------------------------------------------------------ THE NORTH Chris Tighe ------------------------------------------------------------------------ 'We're definitely significantly better than this time last year. Increasingly placings are on a contract rather than a temporary basis. The two most buoyant sectors are for clerical and industrial contract work, unskilled and semi-skilled. We'd rather not give any figures - we work in a very competitive marketplace.' Kathy McDowall, ManPower ------------------------------------------------------------------------

--------------------------------------------- JOB VACANCIES --------------------------------------------- Jan '93 Jan '92 --------------------------------------------- Newcastle 566 338 Sunderland 386 311 Middlesbrough 152 216 --------------------------------------------- Dept. of Employment ------------------------------------------------------------------------ TRANS-PENNINE Ian Hamilton-Fazey ------------------------------------------------------------------------ 'The Trans-Pennine regions are almost an oasis in a turbulent national economy. It is a complete reversal of the recession of the early 1980s. You have only to go to the restaurants in Leeds and try to book a table to appreciate the difference with London. They are crowded. The salary gap with London is rapidly reducing. You now have to pay Pounds 12,000 a year for a good secretary in Leeds in certain cases. London secretaries used to get up to 2 1/2 times more than those Leeds. Now, good secretaries are glad to work in London for Pounds 14,000 or Pounds 15,000 a year.' Grahame Caswell, MD, Kelly Temporary Services ------------------------------------------------------------------------ WALES & WEST Roland Adburgham ------------------------------------------------------------------------ Bristol unemployment in January rose to 39,036, an increase of nearly 4,000 over 12 months and taking the unemployment rate to 10.1 per cent, one point higher than in January 1992. Unfilled vacancies rose in January by 67 to 869 compared with the previous January. 'Unemployment here has gone up quicker than in most other areas in the country - we have suffered in financial services, construction and of course defence. But in the last few months we get the impression that things are easing, except in defence and aerospace.'

Mike West, Bristol Econ. Dev. Office

Rolls-Royce announced on Thursday a further 1,400 redundancies in Bristol ------------------------------------------------------------------------

MIDLANDS Paul Cheeseright ------------------------------------------------------------------------ 'Although the average number of vacancies is down, the level of increase in unemployment is now falling as the recession bottoms out.' Birmingham City Council Economic Development Department 'We have seen a bigger increase in part-time vacancies in the services sector, especially the retail industry, than in previous years.' Employment Service, Leicester ------------------------------------------------------------------------

--------------------------------------------- JOB VACANCIES - BIRMINGHAM --------------------------------------------- 1993 1992 --------------------------------------------- January 9,109 10,397 February 9,002 10,291 --------------------------------------------- 12 month moving ave. of news paper vacancies ------------------------------------------------------------------------ SOUTH-EAST Gillian Tett ------------------------------------------------------------------------ 'We are seeing a slight improvement against last year, but very slight. As a supplier of temporary and casual staff we tend to be a lead indicator, because companies take on temporary staff until they are completely sure that things are better. Overall we have seen an upturn since Christmas, but we've been reluctant to say this is a recovery because of the seasonal factors. 'The picture is patchy across different sectors - although private building and some manufacturing sectors have improved, the picture in the service sector is still negative.' Manpower employment agency ------------------------------------------------------------------------ PROPERTY ------------------------------------------------------------------------ SCOTLAND James Buxton ------------------------------------------------------------------------ 'We're very busy at the moment. 'There's been no uplift in house prices but there's a lot more movement in the market - the standard of living of people in work is holding up well.' David Land, TSB Bank, Edinburgh

The TSB is probably Scotland's biggest mortgage lender. The number of mortgages it processed and completed in the three months to the end of February was up by 35 per cent compared with the same period last year. ------------------------------------------------------------------------ THE NORTH Chris Tighe ------------------------------------------------------------------------ 'In the past two months there's been a bit of an increase in work in domestic conveyancing but it's been a little bit patchy. There's certainly no sustained improvement.' Fred Wilson, partner, Dickinson Dees. The north-east's largest solicitors, it employs 230 staff at their Newcastle office 'Our busiest department by far is the litigation department. That's a comment on the state of the world in general. Every penny counts. The commercial department, in contrast, is pretty quiet.' John Tilly, managing partner, Tilly, Bailey & Irvine. Hartlepool-based and founded 1841 to cater for the town's then thriving shipping sector ------------------------------------------------------------------------ TRANS-PENNINE Ian Hamilton-Fazey ------------------------------------------------------------------------ 'Commercial property activity is very patchy and you can't generalise. You don't need figures or pieces of paper to tell you not much is happening - the phone doesn't ring. If anyone says anything else, they are whistling in the dark. Everyone says they're busy, but are they

earning fees? It's going to be a long haul out. Companies have had a bad fright. Why should anyone move offices who does not need to? No one is going to increase overheads, or walk away from a lease they have not been able to assign. They can't afford to leave such a liability behind them.' Tom Marshall, partner, Lambert Smith Hampton, surveyor and property agents, Manchester ------------------------------------------------------------------------ WALES & WEST Roland Adburgham ------------------------------------------------------------------------ BRISTOL & WEST +30% Mortgages* 'We're off the bottom and coming out of recession, but not really far enough or fast enough.' Bristol & West Building Society Since the new year in its Severnside region - which includes Avon and South Wales - mortgage applications are running about 25 per cent lower than a year ago, but about 30 per cent up on the last quarter of 1992 * applications so far this year compared with last quarter ------------------------------------------------------------------------ MIDLANDS Paul Cheeseright ------------------------------------------------------------------------ 'Business is on the up. I think we're beginning to see a few signs of spring in the housing market. Mortgage offers between January and February 1993 were worth Pounds 98m, three times the amount for January to February 1992.' Mike Jackson, chief executive, Birmingham Midshires Building Society 'There is movement in the market. Residential conveyancing in our Birmingham and Nottingham offices has picked up since Christmas.' Tim Price, manager Birmingham residential conveyancing unit Evershed Wells & Hind, solicitors ------------------------------------------------------------------------ SOUTH-EAST Gillian Tett ------------------------------------------------------------------------ 'There has definitely been a big upturn in business. it has taken us a bit by surprise. It remains to be seen whether this is a blip. We expect out busiest time will come in the spring. The rise may be partly due to regional factors - because East Anglia had been hard hit by the recession, prices had fallen particularly low. People have realised that there are some almost ridiculous bargains to be had. Buyers are still cautious, but they are now starting to dip their toe in.' Jim Philbin, assistant general manager, Norwich and Peterborough Building Society. Compared to the same period last year, applications have risen by between about 5 per cent and 6 per cent. January and February's figures are 'significantly higher' than the previous three months ------------------------------------------------------------------------ INDUSTRY ------------------------------------------------------------------------ SCOTLAND James Buxton ------------------------------------------------------------------------ SCOTTISH HYDRO-ELECTRIC +3% Industrial sales* Scottish Hydro-Electric, which provides power to the north of Scotland, reports a three per cent increase in industrial sales between the last quarter of 1992 and the last quarter of 1991. * last quarter 1992 against last quarter 1991 ScottishPower meets three-quarters of Scotland's industrial electricity consumption and supplies the southern part of the country. 'We have seen no significant variation in industrial demand between demand in the past three months and the same period a year ago.' Ian Preston, chief executive ------------------------------------------------------------------------ THE NORTH Chris Tighe ------------------------------------------------------------------------ Northumbrian Environmental Management, is a waste management subsidiary

of Northumbrian Water. It has two landfill sites in north-east England: in Northumberland and Tyne and Wear. Volumes were slightly up, by up to 5 per cent, in January and February 1993, against the same months in 1992. ------------------------------------------------------------------------ 'We see a slight pick-up, but it's not dramatic and there is no sign of construction waste increasing. Prices are really under pressure: in 1993 real prices are likely to fall marginally. There is plenty of capacity and volumes have probably dropped. On the construction side we don't see any change, there are people quoting substantial price reductions so the volume of the market has shrunk.' Peter Wilson, MD ------------------------------------------------------------------------ TRANS-PENNINE Ian Hamilton-Fazey ------------------------------------------------------------------------ Associated British Ports this week reported 4 per cent growth in for Humber ports in 1992, with record levels nearing 50m tonnes at Hull, Immingham, Grimsby and Goole. 'The trend continuing this year and Hull traffic is at a 25-year high, with an old dock reopened and a new ro-ro terminal starting up in November.' Stuart Bradley, ABP managing director Exports of Jaguar cars from Liverpool to North America are up, but Canadian wood imports are down, following sterling devaluation. 'Recession has bottomed out and we are coming out the other side. There has been a rapid take-up of new industrial units in Liverpool freeport by electrical and computer distributors.' Trevor Furlong, MD ------------------------------------------------------------------------ WALES & WEST Roland Adburgham ------------------------------------------------------------------------ C-T Plant Hire, based at Weston-super-Mare, hires construction plant to the private and public sector 'Compared with the first part of last year there has been no improvement whatsoever. There are no big long jobs nor big developments - everyone is shopping for the cheapest price. 'The recession for us started two years and nine months ago and it hasn't finished yet. But we're in the survival business and very optimistic.' Angie Beresford, director ------------------------------------------------------------------------ MIDLANDS Paul Cheeseright ------------------------------------------------------------------------ Leigh Environmental is a waste disposal company based in Birmingham. 'We are seeing an increase in confidence. A number of waste producing clients have been prepared to release materials which they had been stockpiling to conserve cash.' Mark Stanley, marketing manager BFI, is another waste disposal business based in Birmingham. 'Industrial and commercial waste is fairly stagnant. What has started rising is ground clearance waste (deposited at Packington, near Birmingham) - up by 27 per cent over last year - which may be an indication of future construction work.' Marek Gordon, business development director ------------------------------------------------------------------------ SOUTH-EAST Gillian Tett ------------------------------------------------------------------------ BIFFA -5% VOLUME* Biffa Waste Services is one of the biggest industrial and business waste disposal groups in the south-east. The volume for retail and commercial waste is largely unchanged but there have been increasing enquiries about the disposal of hazardous waste - a trend, which it says indicates a slight upturn of confidence. 'A number of large companies are saying 'this can't go on for ever'. We've seen signs that they're wanting to clear the decks, and do things

like rationalise their waste disposal. That's always the first sign of recovery.' Peter Jones, external affairs * construction waste against last year *construction waste against last year ------------------------------------------------------------------------ RETAIL ------------------------------------------------------------------------ SCOTLAND James Buxton ------------------------------------------------------------------------ JOHN LEWIS +3.3% TURNOVER* 'I sense a pent-up optimism here, a wish for things to get better, a greater willingness to see the end of it. But while the (Edinburgh) store tended to be strong throughout 1992 and often led John Lewis' mature stores in terms of sales growth, in the last five weeks we have struggled a little. Sales increases averaged 5 or 6 per cent for much of the last financial year, but were only 3.3 per cent for the first four weeks of the new year. Furniture and carpet sales have held up and the appetite for consumer electronics is astonishing.' Russell Husband, MD, John Lewis, Edinburgh ------------------------------------------------------------------------ THE NORTH Chris Tighe ------------------------------------------------------------------------ JOHN LEWIS +0.4% TURNOVER* 'Quiet is the word. We had a fairly modest 1992, and it really hasn't changed very much.' Bainbridge has seen sales increases of only 0.4 per cent over the first four weeks of the new financial year, similar to the 0.8 per cent it saw for the previous half year. Newcastle came out of the recession of the early 1980s later than the south of England, and went into the current recession later. 'There has been some upturn in sales of electrical appliances, including both white goods and electronics and TV. People who are in work do have some disposable income, and as they are not moving house they seem to be spending it on home entertainment.' Brian Forbes Turner, MD, Bainbridge, Newcastle ------------------------------------------------------------------------ TRANS-PENNINE Ian Hamilton-Fazey ------------------------------------------------------------------------ JOHN LEWIS +8.2% TURNOVER* 'Sales have been good for the last six months on Merseyside. People are more resilient here, they've seen it all before. We have had recessions while the rest of the country has been ploughing forward. The green shoots are there, but they are very fragile and could be broken off at any moment.' The store saw an encouraging sales increase of 8.2 per cent for the first four weeks of its financial year, after 5.8 per cent over the previous half year. The upturn began late in summer. 'It could be that people decided if they weren't going to spend money on holidays, they would spend a bit in the shops.' Allan Allkins, MD, George Henry Lee, Liverpool ------------------------------------------------------------------------ WALES & WEST Roland Adburgham ------------------------------------------------------------------------ JOHN LEWIS +2.3% TURNOVER* 'Nobody is crowing in Bristol. We had a slightly disappointing February, and none of my big high street neighbours are making much noise about good results. Few families have not experienced redundancy, at least indirectly, and several retailing businesses have gone bust. If John Lewis is increasing sales, often we are getting a little bit more of a no-bigger cake. The store has been affected by the lack of trade in 'big-ticket' items such as furniture, carpets and kitchens, but consumers are still prepared to buy 'a video, a new coat, or something for the kids'. Bill Redmond, MD, John Lewis, Bristol ------------------------------------------------------------------------ MIDLANDS Paul Cheeseright

------------------------------------------------------------------------ JOHN LEWIS +5.0% TURNOVER* 'Trade is fragile, fickle, undependable, but tantalisingly showing little glimpses of improvement. The first four weeks of the trading year showed sales increases of a steady 5 or 6 per cent, then it just dropped. A fortnight ago we were back down to 1 per cent. It's repeating the lack of pattern, the lack of stability, of the last 12 months or so. Next week we could be back to 5 per cent. Furniture and soft furnishings are picking up, but are not universally booming. Heavy electrical appliances are also still slow, although radio, TV and computers are selling very strongly. Ian Lawrie, MD, Jessop & Son, Nottingham ------------------------------------------------------------------------ SOUTH-EAST Gillian Tett ------------------------------------------------------------------------ JOHN LEWIS +11% TURNOVER* 'Overall, things are no longer getting any worse. Logic says that nothing stays the same, so things must be getting a bit better.' Kingston has seen sales increases of 11 per cent for the first four weeks of the financial year, compared with 11.2 per cent over the last half-year, but there are some special factors at work. It is a new store, opened in September 1990, and so is still building up its trade. The opening of the adjoining shopping centre last November also boosted sales. 'If the figures kept running through to May or June at about the same level, then we would know there was something there. In retailing, you live on hope. Sales of furniture and furnishings are still flat but as in other branches, TV and electronics are doing well.' Peter O'Ryan, MD, John Lewis, Kingston *4 weeks to 27 Feb 1993, % increase on 1992 ------------------------------------------------------------------------ SERVICES ------------------------------------------------------------------------ SCOTLAND James Buxton ------------------------------------------------------------------------ Newspaper advertising: Scotsman Publications publishes The Scotsman, Scotland on Sunday, the Edinburgh Evening News and local papers

'You get green shoots at this time of year but you can also get five degrees of frost. January was very slow for advertising but February was up on last year. There's a strong upturn in the used car market and some recovery in situations vacant. Retailers are taking more display advertising and fighting hard for a bigger share of the market. Property advertising for mature houses is dragging, and hotels and restaurants are slow.' Joe Logan, MD ------------------------------------------------------------------------ THE NORTH Chris Tighe ------------------------------------------------------------------------ Advertising: the Newcastle Chronicle and Journal, part of Thomson Regional Newspapers 'The recession has hit here most severely since last October. That was the first time we remarked any serious downturn. Overall our performance is ahead. Some of that is down to share growth, I don't think there's any growth in the market. We think the market is flat, if not slightly down. Retail advertising was slightly better and recruitment advertising slightly worse in Jan and Feb 1993 than one year before. If we're doing slightly better, somebody is doing slightly worse. We've increased market share in a market which is not doing well.' Jim Chisholm, marketing director ------------------------------------------------------------------------ TRANS-PENNINE Ian Hamilton-Fazey ------------------------------------------------------------------------ MANCHESTER AIRPORT +7% TRAFFIC*

Numbers of passengers starting from the airport rose 6 per cent in January and February compared with the same months of 1992. But transit passengers - fed in from 19 airports around the UK - were down 25 per cent, suggesting differential demand between the north and more distant parts of the country. International scheduled traffic - an indicator of business travel - was up 7 per cent in the two months. * International scheduled traffic in Jan/Feb ------------------------------------------------------------------------ WALES & WEST Roland Adburgham ------------------------------------------------------------------------ Welsh Tourist Board: In a survey of about 200 hotels, bedspace occupancy was at 19 per cent in January, slightly up from 18 per cent a year before, which itself was 1 per cent up on the previous year Torbay in Devon expected to send out 180,000 holiday brochures this year but is already running out. 'We have had a massive increase in inquiries this year - up 18.5 per cent compared with the same time a year ago. After devaluation Britain is clearly a cheap destination compared with abroad.' Tim Whitehead, tourism director for Torbay, which includes Torquay, Paignton and Brixham ------------------------------------------------------------------------ MIDLANDS Paul Cheeseright ------------------------------------------------------------------------ Advertising: Wolverhampton Express & Star. Volumes for January and February 1993, compared with same period of 1992 - retail up 35 per cent, property up six per cent, classified down three per cent, display 'single digit increase', situations vacant down seven per cent in January, level in February. 'The ingredients are coming together to show we've turned the corner, but there is nothing dramatic' Bob Hawkins, director ------------------------------------------------------------------------ SOUTH-EAST Gillian Tett ------------------------------------------------------------------------ Taxi company: Checkers Cars, Reading. The taxi trade is down according to Checkers, one of the largest taxi companies in the southern region. It nearly doubled its business in the last year and has 100 cars, which perform about 15,000 jobs a week. However, several other taxi companies in the Reading area have gone out of business. 'People are taking fewer taxis. Whereas once someone might have taken a cab three or four times a week, now they'll only take it one or two. The business is there - but you have to work hard to go out and get it.' Ravi Arora, proprietor ------------------------------------------------------------------------ LOCAL BAROMETER ------------------------------------------------------------------------ SCOTLAND James Buxton ------------------------------------------------------------------------ Traffic on Forth Road Bridge: The number of vehicles crossing the bridge rose by 5 per cent in 1992 but was almost unchanged at 3.9m in the three months between November and January. 'We had very bad weather and high winds for much of January, but February should show a one and half per cent rise.' Jim McColm at the bridge office ------------------------------------------------------------------------ THE NORTH Chris Tighe ------------------------------------------------------------------------ Armitage Engineering, Washington, Tyne and Wear: Founded 23 years ago, specialises in high specification machining and fabrications. Jan-Feb 1993 order book worse than one year ago. 'There's a shortage of work, people are screwing you pricewise, then don't pay you in a reasonable period of time. There are so many people like ourselves, desperate for business, who will go in on a loss leader basis, on the off chance it will lead to further work. We're like a lot of lemmings committing suicide. Profitability? What's that word? The

name of the game is survival. The nicest thing anybody in accounts could ever say to me is: you've broken even.' Alan Armitage, MD ------------------------------------------------------------------------ TRANS-PENNINE Ian Hamilton-Fazey ------------------------------------------------------------------------ Rigby Maryland, wire manufacturer, Liversedge, West Yorkshire: Its stainless steel wires go into ropes, cables, knitted mesh and welded mesh. Annual turnover Pounds 8m. 'We have had our best January ever with sales revenue up 16.4 per cent on last year. February was pretty good too, with an 11 per cent rise. Over the two months, we did 8 per cent more in tonnes. We exported 40 per cent, but domestic sales are up too. Devaluation of sterling has helped: the Germans cannot compete on prices, the Japanese have almost disappeared out of the market, Korean prices are tied to the dollar and they are struggling. Only the Italians are still in there.' Christopher Moore, MD ------------------------------------------------------------------------ WALES & WEST Roland Adburgham ------------------------------------------------------------------------ Tamar Bridge: The southern link between Devon and Cornwall, which carried 13m vehicles in 1992, carried just one vehicle less in January and February than in the same months last year. 'Perhaps someone wasn't feeling well that day.' Severn Bridge between England and South Wales carries up to 17m vehicles a year, three times the amount when it opened in 1967. The toll went up to Pounds 3.10 in January. Severn River Crossing took over the bridge last April 'At times traffic is higher than we anticipated and there are indications that traffic growth may be returning.' ------------------------------------------------------------------------ MIDLANDS Paul Cheeseright ------------------------------------------------------------------------ Steel stockholder -6% SALES * The position is clouded by an attempt to make price rises stick. Sales so far this year are about six per cent below the 1992 first quarter, but have been been on a gentle upward trend since last October, deemed to be the bottom of the cycle. 'No one expects things to get worse' Richard Rawlins, executive director, National Association of Steel Stockholders, Birmingham * against first quarter 1992 ------------------------------------------------------------------------ SOUTH-EAST Gillian Tett ------------------------------------------------------------------------ Sports Club: Young's Health Studios, Luton, Beds: Membership has fallen by about 8 per cent compared to the same period last year. However, profitability has risen by 25 per cent, primarily because of price increases, and a switch from annual membership to shorter payment systems. 'People are still spending money at health clubs in the south-east but they prefer to pay on short-term membership. What worked for health clubs in the 1980s isn't going to work in the 1990s. People now have more and more time, but don't want to join a health club for a year because they don't know if they will be in work for a year.' Andy Young, proprietor ------------------------------------------------------------------------

GB United Kingdom, EC P9611 Administration of General Economic Programs P99 Nonclassifiable Establishments CMMT Comment & Analysis ECON Economic Indicators P9611 P99 The Financial Times London Page 7 4721
Official figures show oil and gas sectors excluded from falling output Publication 930313FT Processed by FT 930313

OUTPUT in every sector of the UK economy, excluding oil and gas extraction, was flat or falling in the final quarter of last year according to official figures released yesterday.

Revised data from the Central Statistical Office confirm that gross domestic product rose by 0.2 per cent in the last three months of 1992 compared with the previous quarter. This left GDP up 0.1 per cent on the same quarter a year earlier.

GDP excluding oil was flat quarter-on-quarter compared with a provisional 0.1 per cent fall. It was 0.1 per cent lower than a year before.

Many analysts are confident that the revised figures are consistent with an economic turning point. Mr Kevin Gardiner of SG Warburg said he now expected to see forecasts for growth this year nudge upwards.

According to Consensus Economics, a consultancy, the latest mean forecast for growth this year among City economists is 1.1 per cent. This compares with the Treasury's forecast of 1 per cent, and last month's consensus of 1 per cent.

The figures also confirmed that domestic demand fell by 0.3 per cent in the final quarter compared with the previous quarter after five successive quarterly gains.

The drop in domestic demand reflected a sharp increase in the rate of destocking. Inventories fell by Pounds 711m in the fourth quarter after falls of Pounds 495m and Pounds 299m in the second and third quarters respectively.

GB United Kingdom, EC P9611 Administration of General Economic Programs ECON Gross domestic product STATS Statistics P9611 The Financial Times London Page 6 273
JCB wins green belt battle Publication 930313FT Processed by FT 930313

THE GOVERNMENT is to allow JC Bamford Excavators, one of the UK's largest privately owned groups, to build a factory in the green belt near Cheadle, Staffordshire.

The Department of the Environment ruled that although the development was inappropriate 'in this most exceptional of cases' economic benefits outweighed such harm as might be caused to the green belt.

J C Bamford Excavators GB United Kingdom, EC P353 Construction and Related Machinery RES Facilities GOVT Government News P353 The Financial Times London Page 6 94
Business body angry at 'snub' Publication 930313FT Processed by FT 930313 By CHARLES BATCHELOR

THE GOVERNMENT was acc-used yesterday of snubbing Britain's largest small-business organisation by failing to send a minister to the annual conference of the Federation of Small Businesses.

The 58,000-member federation said this was the first time in many years that a minister had not attended its conference in Bournemouth, which ends tomorrow. Three hundred delegates have attended for debates on subjects such as the recession, the role of small businesses in economic recovery, the Maastricht treaty and the Budget.

'It is a snub,' said Mr Ian Handford, chairman of the federation's policy unit. 'It confirms our view that the government is paying lip service when it comes to practical policies for small firms.

'We have more members than the CBI and the Institute of Directors put together and we feel a minister should have been here to listen to our views.'

The federation said it had asked Mr John Major to attend, but the invitation had been passed on to Baroness Denton, small firms minister at the Department of Trade and Industry. They finally invited Mr Bill Cash, a Tory Euro-rebel MP, who accepted an invitation to talk about the Maastricht treaty.

The DTI said the invitation had reached Baroness Denton only a month ago and she could not change her programme, which involved visits to Devon and Cornwall.

Federation of Small Businesses (UK) GB United Kingdom, EC P8611 Business Associations P91 Executive, Legislative and General Government COMP Company News P8611 P91 The Financial Times London Page 6 262
Government seeks to allay fear of 'mad cow' disease Publication 930313FT Processed by FT 930313 By CLIVE COOKSON, Science Editor

GOVERNMENT veterinary and health experts were yesterday putting out reassuring messages about bovine spongiform encephalopathy (BSE), or 'mad cow' disease, in the face of growing public anxiety.

Dr Kenneth Calman, the government's chief medical officer, yesterday repeated the official advice that beef can be eaten safely: 'There is no scientific evidence of a causal link between BSE in cattle and CJD in humans.'

One cause of concern is that the number of cases is continuing to rise, in spite of forecasts from the Ministry of Agriculture that the incidence of cases would peak last year and then decline rapidly. Farmers reported 8,581 animals with BSE during the first nine weeks of this year compared with 8,099 in the same period last year.

Another fear is that BSE could cause illness in humans. It was revealed this week that Mr Peter Warhurst, a dairy farmer whose herd had a BSE case in 1989, died last year of Creutzfeld-Jacob disease. Both BSE and CJD are caused by mysterious particles of infectious protein called prions.

Dr Robert Will of Western General Hospital, Edinburgh, who is monitoring all CJD cases in the UK for the Department of Health, drew attention to Mr Warhurst's case without naming him in the Lancet, a medical journal. He says he now regrets writing to the Lancet because of the unnecessary alarm caused.

Statistical analysis, taking account of the average national incidence of CJD and the number of people working on BSE-affected dairy farms, shows that the probability of one CJD case having occurred among the latter group by chance is about 1 in 20.

Even so, Dr Will believes that Mr Warhurst's disease was a coincidence not related to BSE exposure. His study has shown no change in the pattern of CJD since BSE started and no other cases among people working with cattle, such as abattoir staff or vets.

GB United Kingdom, EC P80 Health Services P9641 Regulation of Agricultural Marketing TECH Safety P80 P9641 The Financial Times London Page 6 353
Fall in savings points to recovery Publication 930313FT Processed by FT 930313 By EMMA TUCKER, Economics Staff

INDIVIDUALS were less inclined to save in the final quarter of last year, a trend consistent with evidence of a modest recovery in consumer spending.

Figures published yesterday showed that the savings ratio, which measures personal savings as a percentage of total income, dropped from a seasonally adjusted 12.3 per cent in the third quarter to an adjusted 11.4 per cent in the fourth quarter.

The fall, which coincided with several reductions in UK interest rates, took the ratio back to roughly the same level as at the beginning of the year. The drop was widely expected as high redundancy payments in the third quarter had boosted the savings ratio to an eight-year high.

For last year as a whole the ratio was 11.6 per cent compared with 9.7 per cent in 1991.

The Central Statistical Office figures also showed that personal disposable income rose a slim 0.3 per cent in the final quarter compared with the third. An increase of 1 per cent in prices over the same period, however, meant that in real terms, personal disposable income was 0.8 per cent lower. Compared with the same quarter in 1991, real personal disposable income was 2.5 per cent higher.

Consumer expenditure in the final quarter rose by 1 per cent and by 3.9 per cent compared with the same quarter the year before.

The state of company finances continued to improve on an annual basis with seasonally adjusted figures from the CSO showing a financial deficit of Pounds 10.5bn last year compared with Pounds 11.1bn in 1991. However, this was less than half the size of the deficit in 1989 when it was Pounds 22.7bn.

In the final quarter the deficit narrowed to Pounds 1.4bn from Pounds 1.7bn in the third quarter.

Gross trading profits of the corporate sector, net of stock appreciation, stayed at about Pounds 19.7bn in the final quarter. The figure was maintained by North Sea oil companies' gross trading profits which increased by 18 per cent from Pounds 1.5bn in the third quarter to Pounds 1.8bn in the fourth.

Trading profits from non-North Sea oil companies fell in the final quarter compared with the third quarter from Pounds 18.2bn to Pounds 17.9bn.

GB United Kingdom, EC P8811 Private Households ECON National income STATS Statistics P8811 The Financial Times London Page 6 402
Industrial espionage laws placed under surveillance: John Mason on questions raised by the NCP trial and the furtive methods used by security companies Publication 930313FT Processed by FT 930313 By JOHN MASON

THE two defendants in the National Car Parks industrial espionage trial walked free from the Old Bailey yesterday - but left behind them calls for reform of the law about the secretive methods used by private security organisations in the commercial world.

Mr Gordon Layton, chief executive of NCP, and Mr Simon Hewitt, a former manager with KAS, the security firm hired by NCP to spy on a business rival, were acquitted of conspiracy to defraud.

That followed a two-month trial in which details of their spying operation were never in dispute. The operation included surveillance of directors of Europarks, the target company, rifling of dustbins and briefcases, and the use of infiltrators to obtain confidential financial information.

Under the law, none of these techniques is illegal in itself. The law is broken only when the intention is to damage the interests of the target company. In this case the prosecution agreed there was no evidence that Europarks had suffered as a result of the espionage operation.

Calls for clarification of the law were led by lawyers acting for Mr Layton who had rested their defence on the assurances given to him by KAS that its methods were legal.

The calls were echoed by solicitors from other law firms which have been frequent, if discreet, hirers of private security firms. 'The law is unclear,' said one solicitor. 'There has also been the temptation for us to be somewhat disingenuous about how information is obtained - that must now change.'

Mr Layton first heard of KAS, the security firm formed by the late Sir David Stirling, founder of the Special Air Service, in late 1986. The firm employed several former members of the regiment.

Mr Layton had become concerned about the inroads Europarks was making into NCP's dominance of the car-parking market. He suspected that Mr Steven Tucker, Europarks chairman, was undercutting NCP to win prime-site contracts by obtaining inside information from NCP.

A meeting with Sir David was arranged and Mr Layton, impressed by the organisation's SAS background and its claims to offer the 'Rolls-Royce' of corporate investigations services, hired KAS to investigate both Europarks and security within NCP. But Mr Layton had apparently misjudged KAS.

In the security business KAS had acquired the reputation of a poorly managed concern, still wrapped up in the mythology and thinking of its SAS ancestry. One witness told the court that considerable time was once spent discussing how the company should defend itself against a possible IRA attack on its Mayfair offices.

The staff at KAS may have been highly trained, but the organisation lacked the managerial control to question properly the wisdom or legality of applying techniques of covert military work to the commercial world, said the director of one security firm.

But however bizarre and badly managed KAS may have been, it did ultimately succeed in discovering the most confidential financial secrets of its rival.

The operation was headed by Mr Ian Crooke, a former colonel in the SAS. He would have appeared in the dock alongside Mr Layton and Mr Hewitt, but has remained in South Africa beyond the reach of the UK's extradition powers.

Early in 1987 Mr David Paterson, who before joining KAS had once been a Rhodesian policeman, carried out initial investigations and said he could find no evidence of dirty tricks by Europarks. Its success, he reported, was based on trimming all its costs down to the absolute minimum.

This did not satisfy Mr Layton. He ordered KAS to maintain surveillance on Europarks. For the next year Mr Tucker, his family and other Europarks directors were closely followed by KAS staff. This provided little information except worthless tittle-tattle.

So, in February 1988, KAS stepped up its operation. Realising it needed an insider to obtain the information it wanted, the firm set about trying to infiltrate Europarks.

A KAS employee, known during the trial as 'Witness E', obtained a job as a kiosk manager at Europarks' Heathrow offices. But he was in too low a position to get the information needed. What was necessary, KAS decided, was an insider in Europarks' management.

By May 1989 Mr Crooke had left Britain to look after KAS's anti-poaching activities in southern Africa. Mr Simon Hewitt, a member of the Territorial Army SAS, was brought in as a replacement manager and took charge of the NCP account.

He recruited Ms Jane Turpin, a former Army captain, to KAS. Using a false CV, she secured a job with Europarks as Mr Tucker's personal assistant.

With free access to his offices there was little she could not obtain. In six months she provided a welter of confidential information about the company's finances. It was crucial information, which, Mr Tucker said, laid bare the soul of his company.

Ms Turpin - who but for health reasons would also have been prosecuted - left Europarks in November 1989, and the operation, which had cost NCP more than Pounds 46,000, was wound up.

The operation would never have come to light but for a dispute within KAS. Mr Hewitt had not proved a popular choice with his colleagues and, in early 1990, he was sacked. He approached a Sunday newspaper with the NCP story, which appeared in print in June 1990. The day before, when approached for his reaction, was the first time that Mr Tucker had heard anything of the three-year operation against his company.

The calls for clarification of the law on industrial espionage may not be easy to carry out. The issues are complex, particularly the question of using pretexts, said Mr Stephen Smith, a director of Carratu, an established security firm.

To him the KAS operation was ill-advised and one whose objects could have been reached equally well using methods that were more acceptable and clearly legal.

But he questioned whether infiltration was a significant problem compared with other, more obviously illicit activity. Leaving aside industrial espionage, more information is obtained by companies prepared to use the illegal technique of old-fashioned bribery, he suggested.

National Car Parks KAS Europarks GB United Kingdom, EC P7381 Detective and Armored Car Services P7521 Automobile Parking GOVT Regulations CMMT Comment & Analysis P7381 P7521 The Financial Times London Page 6 1066
JCB wins right to build factory Publication 930313FT Processed by FT 930313 By PAUL CHEESERIGHT, Midlands Correspondent

THE government is to allow JC Bamford Excavators, one of the UK's largest privately owned groups, to build a plant in the green belt near Cheadle, Staffordshire.

The decision, announced yesterday by the Department of Environment, overrides the recommendation of Mrs Mary McClune, the planning inspector who last September held a public inquiry and concluded that JCB's application should be rejected.

The government has thus breached its normal planning restrictions on developments in the green belt. Planning policy hitherto has discouraged green belt developments in favour of encouraging the redevelopment of inner-city areas. This policy was emphasised, especially in the home counties, by Conservative politicians before the last general election.

The planned JCB plant, covering 15,220 square metres, would house JCB Special Products, making skid steer loaders and small back low loaders presently manufactured at Uttoxeter, Staffordshire.

In a letter to Kent Jones and Done, JCB's solicitors in Stoke-on-Trent, the environment department noted that the development was 'inappropriate' but said that 'in this most exceptional of cases' economic benefits outweighed such harm as might be caused to the green belt.

JCB's application was supported by Staffordshire County Council.

J C Bamford Excavators GB United Kingdom, EC P353 Construction and Related Machinery RES Facilities GOVT Government News P353 The Financial Times London Page 6 230
Fishermen call for EC ban on imports of Russian cod Publication 930313FT Processed by FT 930313 By JIMMY BURNS

FISHERMEN's leaders yesterday called for a European Community import ban on Russian cod but held back from supporting a blockade of ports.

Officials of the National Federation of Fishermen's Organisations, which represents most fishermen in England and Wales, called for the ban during a meeting in Grimsby, where fishermen this week stopped lorries from delivering Russian fish to the local market.

The decision not to back a more widespread campaign of protest action reflects the wish of fishermen's leaders not to fuel the kind of violent protests that have occurred in France.

The UK Association of Frozen Food Producers yesterday warned that any import ban could lead to a shortage of fish by the summer.

Mr Geoffrey Molloy, the association's chairman, said: 'Banning cod imports will not help the consumer and will certainly not help prices. The increases in landings which the fishermen complain about are, in fact, caught by UK fishermen themselves.'

The Ministry of Agriculture, Fisheries and Food said yesterday that the government would not back the fishermen's call for a ban at next week's EC council of fisheries ministers.

'We need to look after the fish-processing industry . . . It is a big business in the UK,' the ministry said.

Mr Stephen Pearse, assistant port manager at Grimsby, warned yesterday that action might have to be taken against fishermen if the unofficial blockade began to affect the port's business. He added that the blockade this week was not as big as some reports had suggested.

QR European Economic Community (EC) RU Russia, East Europe P0912 Finfish P9641 Regulation of Agricultural Marketing MKTS Foreign trade P0912 P9641 The Financial Times London Page 6 294
Operation Cheetah will continue its hunt: Merseyside investigation to carry on after Hatton's acquittal Publication 930313FT Processed by FT 930313 By IAN HAMILTON FAZEY

YESTERDAY's acquittal of Mr Derek Hatton and his three co-defendants on fraud charges comes nearly 10 years after he led a group of councillors from the far left of the Labour party to take control of Liverpool City Council.

The prosecution at Mold Crown Court in Wales was part of Operation Cheetah, a Merseyside police fraud squad investigation, which in three years involved 23 arrests and threw a cloud of suspicion over Liverpool City Council.

Even now, the police have said that the operation will continue.

At one stage, more than 30 officers were involved. Police went to the US, Spain and Ireland - at home, they raided the offices and homes of senior executives and directors of leading companies.

Only one executive was charged - Mr Roy Stewart, managing director of Rogersons Developments, a building company. Mr Stewart was discharged on the judge's direction last week at the end of the prosecution case.

Mr Hatton was alleged to have improperly used his influence with two former councillors - Ms Hannah Folan and Mr John Nelson - to help ensure sites for carparks were leased to Mr John Monk, Mr Hatton's tailor.

Mr Nelson, who formerly chaired the council's planning committee, was one of 47 Labour councillors disqualified from office in March 1987 for alleged financial mismanagement along with Mr Hatton. Ms Folan was one of the Labour replacements elected the following May. She chaired the estates sub-committee, which deals with lettings, but left the council in 1991.

Mr Hatton, always dapper and well-dressed, was a prominent customer of Mr Monk, whose tailoring business was near the offices of Settleside, Mr Hatton's PR company.

All the defendants exercised their right not to give evidence at the end of the prosecution case, which revealed that deals to sell or lease Liverpool's assets were often negotiated and not always advertised.

Since the prosecution was alleging Liverpool had been defrauded because it might have got more by leasing the carpark land to someone other than Mr Monk, lack of certainty about prices and methods of deciding them was crucial. Not surprisingly, the jury - after 7 1/2 hours of deliberation - refused to convict on the evidence.

In Mr Hatton's heyday, Liverpool City Council was notionally led by Mr John Hamilton, a Labour moderate and headteacher who thought he could control the far left. But he soon found that real power lay with Liverpool's district Labour party, which often told the caucus of Labour councillors what to do.

The real leader was Mr Hatton, Mr Hamilton's deputy. Mr Hatton, a natural orator and showman was a social worker employed by the neighbouring borough of Knowsley. He admitted that he supported the ideas of the Militant, a weekly publication describing itself as 'the Marxist newspaper for Labour and youth'.

The council borrowed from foreign banks to fund its policy of economic regeneration through building council houses. In 1985, with little money left to pay wages, the leadership tried to make more than 30,000 employees redundant.

In one of his strongest speeches, Mr Neil Kinnock, then Labour leader, denounced the Liverpool leaders' behaviour as 'grotesque'. Mr Kinnock then set about removing what had become an electoral liability. The district Labour party was suspended and a purge began.

The government also acted. In 1987, 47 Labour councillors were disqualified from public office for five years and surcharged for alleged financial mismanagement. The surcharges - which with legal costs eventually exceeded Pounds 700,000 - were paid after several years of fund-raising in the Labour and union movements.

Out of office, Mr Hatton continued to make a living as a media personality, star of TV commercials and public relations consultant.

His company, Settleside, offered lobbying services founded on an intimate knowledge of local government. It went into liquidation after Operation Cheetah began and publicity drove its corporate clients away.

Its legacy for Mr Hatton is understood to be a well-financed pension fund that liquidators cannot touch and which will ensure an affluent retirement.

But Mr Hatton still has a bill likely to run into thousands of pounds to settle first - the judge yesterday refused him costs.

GB United Kingdom, EC P9121 Legislative Bodies GOVT Legal issues PEOP Personnel News P9121 The Financial Times London Page 5 732
City settles on the way ahead after Taurus: Richard Waters on suggestions for handling share transactions Publication 930313FT Processed by FT 930313 By RICHARD WATERS

THERE was a surprising unanimity in the City yesterday over what should replace Taurus, the London Stock Exchange's proposed settlement system, which was declared dead on Thursday.

Different sections of the securities industry have different interests, but there seemed to be agreement over the general direction that future development should take.

First, individual shareholders should be left out of the first stage of the development. Taurus had been conceived from the point of view of institutional investors, and getting the large volume of private shareholdings on to an automated system would add to the complexity and cost.

Second, the Stock Exchange already has an automated settlement system which could be adapted to handle much of what Taurus was meant to do. Called Talisman, it was introduced as long ago as 1979 and is used to settle bargains between marketmakers. Each marketmaker has a nominee account in which they group together all their holdings.

In theory, institutional investors could be offered such accounts, as could a stockbroker which maintained a nominee account for its clients - in effect allowing a retail stockbroker to take part in the automated settlement system.

Third, the stock market should move quickly to a system of 'rolling settlement'. Share bargains are now settled once a fortnight: under rolling settlement all transactions would be settled a set number of days after they took place. With institutional investors in Talisman, the settlement cycle could be as little as five or even three days. Individual investors, outside the system and still using share certificates, could settle on a 10-day cycle.

The idea of different settlement cycles was discussed during the Taurus project. At that time marketmakers agreed that the different cycles would not lead to institutional and private investors buying and selling shares at different prices.

There was less agreement yesterday on how, if shares were held in nominee accounts, companies could draw up complete share registers as they are legally obliged to do. Companies would be able to comply with their legal obligations by drawing up a register which simply showed the amount of their stock held in each nominee account.

To find out more, companies would have to employ agents to make inquiries of each nominee to draw up a picture of their share registers. However, this private register would take time to compile and would be unavailable to an outsider.

One way round this would be a central registry, which would construct a complete record of a company's shareholdings.

Technically this would be easy to achieve. A system already developed by a UK registrar could be bought by an independent clearing house and run for the interests of the City as a whole.

This would put the existing bank-owned service registrars out of business, and could curtail severely the operations of the bank-owned custodians. But the Bank of England has made clear that some interests are likely to be trampled in the pursuit of a quick and cheap solution.

GB United Kingdom, EC P6231 Security and Commodity Exchanges TECH Standards TECH Services P6231 The Financial Times London Page 5 537
Horton's BP pay-off revives anger Publication 930313FT Processed by FT 930313 By LUCY KELLAWAY

MR ROBERT Horton received Pounds 780,000 in compensation and Pounds 722,740 in a special pension payment on his departure as BP's chairman and chief executive last year, the company's annual report showed yesterday.

The total pay-off of Pounds 1.53m has revived shareholder anger over severance pay. Institutions questioned whether top executives should be on three-year service contracts, although they said Mr Horton's case was not one of the worst.

Under the present system the service contract is taken as the basis for calculating severance pay. Until recently the contract for top executives was frequently as long as five years, although the Cadbury committee on corporate governance last year recommended a maximum of three years.

Mr Paddy Linaker, chief executive of M&G, the fund management company, said: 'We think Cadbury was on the lenient side - one year is perfectly adequate in most cases.'

The size of a pay-off is adjusted according to the probability of the director getting a new job at the same salary. This leaves some room for argument.

Mr Chris Osman, of solicitors Clifford Chance, said: 'There is no such thing as the going rate for severance pay. For a three-year contract, 18 months to two years might be reasonable for people not eminently employable elsewhere.'

In 1991 Mr Horton received a basic salary of Pounds 480,000 and a bonus of Pounds 307,000.

BP's payment to Mr Horton means that he has joined a select club of executives who have picked up seven-figure sums after parting company with their employers.

The other members include Sir Ralph Halpern, the former head of Burton who received about Pounds 2m; and Mr Peter Scott who received about Pounds 2m when he left Aegis, the media buying group.

British Petroleum GB United Kingdom, EC P2911 Petroleum Refining PEOP Labour P2911 The Financial Times London Page 5 319
Smith heaps scorn on Tory 'chaos' Publication 930313FT Processed by FT 930313 By JAMES BUXTON, Scottish Correspondent

MR JOHN SMITH, the Labour leader, yesterday heaped scorn on Mr John Major, the prime minister, comparing him to a rabbit caught 'blinking in the glare as the juggernaut of slump and recession comes bearing down on him'.

He told the Labour party's Scottish conference in Inverness: 'You point out to him, as kindly as you can, that he should be doing something, but still he blinks and he bleats that his critics are talking the country down.'

It had been a remarkable week in British politics, Mr Smith said. 'We have witnessed the chaos at the heart of this government.' The humiliating defeat on the Maastricht vote was self-inflicted because Mr Major had refused to accept Labour's amendment on the composition of the European council of the regions.

Instead Mr Major had been 'anxious to display his tactical skills as a dazzling political leader' and had taken on the Tory rebels at Harrogate last weekend. 'On Saturday he blustered that the Tory party must unite or be defeated. On Monday in the Commons he got his answer in the division lobby.'

Mr Smith delighted his audience by attacking the Scottish National party for voting with the government on Monday as a result of a 'shady, backstairs deal' with Mr Ian Lang, the Scottish secretary. 'Even from our flexible friends in the SNP it was a remarkable display of opportunism,' he said.

This week's discomfiture of the SNP has boosted the morale of the conference. This is even though it was Labour's first Scottish conference since the general election defeat, in which the party's share of the vote in Scotland went down 3 percentage points to 39 per cent and it lost one seat.

Mr Smith ridiculed the government's white paper on the government of Scotland, which contains plans for greater use of the Scottish grand committee of Scottish MPs, and more administrative devolution to the Scottish Office. 'It takes some believing that this timorous tokenism is the sum total of the government's vision of Scotland,' he said.

Mr Smith was involved in drafting Labour's plans for a Scottish assembly when he was in government up to 1979 and yesterday emphasised his belief in devolution. He said yesterday that Labour would settle for nothing less than a Scottish parliament, which would involve the transfer of legislative and political power from London.

'I passionately want to see that Scottish parliament established. It is for me unfinished business.' A Labour government would in its first year carry through the act to establish a Scottish parliament. It would also set up an assembly in Wales and regional governments in England.

GB United Kingdom, EC P8651 Political Organizations P91 Executive, Legislative and General Government PEOP Personnel News P8651 P91 The Financial Times London Page 5 477
Cunningham expenses decision Publication 930313FT Processed by FT 930313

NO ACTION is to be taken against Mr Jack Cunningham, the shadow foreign secretary, following an investigation into his campaign expenses for last year's general election, Cumbria police said yesterday.

GB United Kingdom, EC P8651 Political Organizations PEOP Personnel News GOVT Legal issues P8651 The Financial Times London Page 5 58
Teachers told to boycott testing Publication 930313FT Processed by FT 930313

MEMBERS of the NASUWT, the second-largest teachers' union, have been instructed to boycott testing and assessment connected with the national curriculum in England and Wales. This follows a ballot in which an overwhelming majority voted for the action.

The action is unlikely to affect this year's tests, now under way, for seven-year-olds, as the union has few members in primary schools. It could disrupt the tests in the summer of 14-year-olds, including the introduction of the controversial new English tests.

Mr John Patten, education secretary, last night said it was a sad decision which would harm children's education.

The NUT, the largest teachers' union, is to ballot its members in May over a boycott of the English tests.

GB United Kingdom, EC P8631 Labor Organizations P82 Educational Services P9411 Administration of Educational Programs PEOP Labour P8631 P82 P9411 The Financial Times London Page 5 154
Fulham FC in GMB strip Publication 930313FT Processed by FT 930313 By DAVID GOODHART, Labour Editor

THE GMB general union yesterday agreed a sponsorship deal with Fulham Football Club. In exchange for a little less than Pounds 10,000, the players at the Division II west London club will wear the GMB logo on their shirts for the last 12 games of the season, of which three will be televised, and the union will be able to use the club's hospitality box for negotiations.

Fulham has had mixed fortunes. The England star Johnny Haynes, the first Pounds 100-a-week footballer, helped to keep the club at the top in the 1950s and 1960s but it later became better known as a pre-retirement stop for players such as George Best, Bobby Moore, and Rodney Marsh. It is now mid-table in the second division and has just secured its future with a lease arrangement for its ground.

The union is backing Fulham partly because it is cheap and partly because the club is inoffensive enough not to arouse hostile feel-ings in the GMB's football-following members. The idea came from the local Hammersmith branch - the union claims more than 4,000 members in the borough of Hammersmith and Fulham.

Mr Paul Kenny, the union's London secretary, hopes the deal will show that 'modern trade unions are an important pillar of the community'.

The GMB has a long history of involvement with sport. Mr Tom Burlison, its deputy general secretary, is a former professional footballer, and the union provides advice to several sports associations.

Fulham Football Club GB United Kingdom, EC P7941 Sports Clubs, Managers, and Promoters P8631 Labor Organizations P731 Advertising MGMT Management P7941 P8631 P731 The Financial Times London Page 5 287
Growth in sales of soft drinks Publication 930313FT Processed by FT 930313

THE SOFT drinks market returned to growth last year after a 6 per cent decline in sales volumes in 1991, according to a report by Britvic Soft Drinks. Consumption rose by nearly 1 per cent to 8bn litres, with an estimated retail value of Pounds 5.5bn.

The report forecasts further growth of 1 per cent this year and estimates that volumes will increase 20 per cent to 9.7bn litres by the end of the decade.

GB United Kingdom, EC P2086 Bottled and Canned Soft Drinks MKTS Sales P2086 The Financial Times London Page 5 105
Accord cuts use of aid as sweetener for trade deals Publication 930313FT Processed by FT 930313 By DAVID DODWELL, World Trade Editor

WESTERN countries' use of aid as a 'sweetener' to help companies win contracts overseas has fallen sharply in the past year, according to aid donors meeting in Paris this week.

The value of tied aid, and other credits seen as trade boosting, fell from Dollars 10bn in 1991 to Dollars 4bn last year, according to the Organisation for Economic Co-operation and Development.

The improvement follows the controversial introduction in February last year of the so-called Helsinki accord, which banned the use of tied aid for projects that are 'commercially viable', or in better-off developing countries. It called for close monitoring of contracts where there is suspicion that aid is being mixed with commercial financing to help companies win tenders.

More than 300 such projects were notified during 1992, but only 30 needed detailed examination. Of these, fewer than half were found to break the new rules, an OECD official said.

'There has been a tremendous shift towards credits that are less suspect of being trade motivated,' the official said, noting at the same time that the slump between 1991 and 1992 may have been exaggerated by governments pushing sensitive loans through in 1991, ahead of the Helsinki accord deadline.

Aid donors, in particular the US, fought hard throughout 1991 for the reforms, which are intended to ensure aid funds are used for proper aid purposes, rather than as covert subsidies for exporters.

Controversy erupted just two weeks before the ban came into force, when Spain launched large export credit lines to Venezuela and Mexico - neither of which are eligible for tied-aid funding under the Helsinki rules. Spain was not forced to withdraw the credits, with a compromise agreed under special transitional rules.

There was uncertainty throughout last year over whether governments would change practices, not least because of difficulties in defining whether a project was 'commercially viable'.

FR France, EC P99 Nonclassifiable Establishments P9311 Finance, Taxation, and Monetary Policy MKTS Contracts RES Capital expenditures P99 P9311 The Financial Times London Page 4 354
US to close 31 military bases Publication 930313FT Processed by FT 930313 By JUREK MARTIN WASHINGTON

MR Les Aspin, the US defence secretary, , yesterday recommended closing 31 major military bases in the US and scaling back operations at a further 134 installations.

The reductions, he estimated, would produce savings on the defence budget of Dollars 3.1bn (Pounds 2.18bn) a year, starting in the year 2000. But he conceded that 57,000 civilian and 24,000 military jobs would be lost.

His proposals are already under fire in Congress. The independent base closure and realignment commission has until July 1 to consider them and forward a final recommendation to the president, who has a further two months in which to take final action.

Conscious of the controversy, President Bill Clinton has gone to some lengths to soften the blow. Yesterday he was on an aircraft carrier off the Virginia coast, demonstrating solidarity with the troops, while on Thursday he annnounced a Dollars 20bn four-year defence conversion plan which he dubbed 'swords into ploughshares.'

Mr Aspin admitted yesterday that the proposed base closures would hurt local economies. California, already deep in recession with unemployment just under 10 per cent, takes the hardest hit, losing over more than 30,000 military and civilian jobs as a result of closing and consolidation.

Five affected facilities are in the congressional district represented by Mr Ron Dellums, now chairman of the House armed services committee and a long time critic of military profligacy. But special pleading by senator Dianne Feinstein and congressman Vic Fazio appears to have saved two famous installations, McLellan Air Force base outside Sacramento and the Monterey Presidio facility which houses the military's language school.

The navy, with 23 of the 31 proposed closures, takes the hardest hit. If Mr Aspin's proposals are implemented, it will be left with just two main ports in the US, in San Diego and Norfolk, Virginia, down from the seven of President Ronald Reagan's era.

Abroad, 29 installations are to close: 14 in Germany, eight in Greece, four in the Netherlands and two in Britain.

US United States of America P9711 National Security RES Facilities GOVT Government News P9711 The Financial Times London Page 4 365
Clinton backs anti-trust move Publication 930313FT Processed by FT 930313 By NANCY DUNNE

THE White House has given strong backing to legislation which could discriminate against US subsidiaries of foreign companies in relaxing anti-trust penalties for joint production ventures.

The bill, introduced by Congressman Jack Brooks and Senator Patrick Leahy, was hailed by President Bill Clinton as 'just the kind of forward-thinking initiative we need.' With White House backing, it is expected to move swiftly through Congress.

The National Co-operative Research Act Extension is modelled on legislation passed in 1984 which allowed US companies to join together for research and development. This made way for the formation of Sematech, an industry-government venture which has been credited with helping to restore the US lead in chip-making technology.

Now, said Mr Clinton, it is 'altogether appropriate to lift the legal barriers that prevent good companies from playing to win in the global market - provided, of course, that our anti-trust laws continue to prevent improper collusion.'

The legislation removes the threat of treble damages in anti-trust violations providing that the joint ventures' principal production facilities are located in the US. The companies must also be American or from countries which 'treat US companies fairly under their anti-trust laws governing joint production ventures'. A Congressional aide declined to say which foreign governments deny US subsidiaries 'fair treatment'. Lawyers say this creative use of 'reciprocity' for anti-trust exemptions will discourage foreign participation in joint ventures.

US United States of America P91 Executive, Legislative and General Government P99 Nonclassifiable Establishments GOVT Draft regulations P91 P99 The Financial Times London Page 4 265
US steps up skirmish with EC over state procurement Publication 930313FT Processed by FT 930313 By NANCY DUNNE WASHINGTON

THE US yesterday raised the stakes in its trade conflict with the EC by closing off an estimated Dollars 40-50m chunk of its government procurement market to EC companies. The action is in retaliation for the Community's government procurement rules which the US claims 'discriminate' against foreign companies.

Mr Mickey Kantor, the US Trade Representative, yesterday said he had cancelled a meeting planned for next week which might have averted the sanctions. They are to go into effect on March 22.

At the EC delegation in Washington, Ms Ella Krucoff, said officials in Brussels had been caught off guard by the cancellation, which was 'unnecessarily aggressive' and 'very unbusiness-like'. She asked: 'How can progress be made if the negotiators aren't even allowed to meet?'

US and EC negotiators have discussed the issue by telephone and made no progress. 'There is no reason to hold a meeting unless there was some prospect of success,' Mr Kantor said. 'The sanctions will go into effect as planned.'

The sanctions will set off a minor explosion in Brussels, where fears of trade wars have been building over a wide range of bilateral disputes and where the Clinton Administration is seen to be less seriously committed to the Uruguay Round than its predecessor.

In this fracas, the US threatened sanctions when the EC put into effect a new community-wide utilities directive, in January. It gives a 3 per cent price preference to bids on telecom and electric power equipment from EC firms.

The US had hoped for gains for its telecommunications companies in the EC market. They are seen as part of the vanguard of particularly competitive US industries, and the Administration is determined to take a strong stand.

The sanctions will hit EC companies whose products are not covered by the multilateral government procurement code - telecommunications, airports, power equipment, waterways and services. The US estimates that those contracts were worth Dollars 40-50m in 1991.

The EC has argued that AT&T ought to be subject to the same disciplines as EC companies, even though most are government owned. The US refused saying it will not interfere with a private entity.

Mr Kantor yesterday denied Japanese charges that US semiconductor manufacturers had cancelled orders from Japan thus defeating Japanese efforts to increase chip imports.

The charges have inflamed the decade-long semidispute.

US United States of America QR European Economic Community (EC) JP Japan, Asia P3674 Semiconductors and Related Devices P9721 International Affairs GOVT Government News P3674 P9721 The Financial Times London Page 4 436
Clinton backs anti-trust move Publication 930313FT Processed by FT 930313 By NANCY DUNNE WASHINGTON

THE White House has given strong backing to legislation which could discriminate against US subsidiaries of foreign companies in relaxing anti-trust penalties for joint production ventures.

The bill, introduced by Congressman Jack Brooks and Senator Patrick Leahy, was hailed by President Bill Clinton as 'just the kind of forward-thinking initiative we need.' With White House backing, it is expected to move swiftly through Congress.

The National Co-operative Research Act Extension is modelled on legislation passed in 1984 which allowed US companies to join together for research and development. This made way for the formation of Sematech, an industry-government venture which has been credited with helping to restore the US lead in semiconductor manufacturing technology.

Now, said Mr Clinton, it is 'altogether appropriate to lift the legal barriers that prevent good companies from playing to win in the global market - provided, of course, that our anti-trust laws continue to prevent improper collusion.'

The legislation removes the threat of treble damages in anti-trust violations providing that the joint ventures' principal production facilities are located in the US. The companies must also be American or from countries which 'treat US companies fairly under their anti-trust laws governing joint production ventures'.

A Congressional aide declined to say which foreign governments deny US subsidiaries 'fair treatment'.

Lawyers say this creative use of 'reciprocity' for anti-trust exemptions will discourage foreign participation in joint ventures or throw into the courts the difficulty of determining which countries accord 'fair treatment' to subsidiaries of American companies abroad.'

'The ambiguities undermine the aims of the anti-trust laws - to encourage efficient economic activity and to promote consumer welfare,' said one Washington lawyer. 'Faced with these unresolved questions, many US companies may simply forego joint ventures with certain foreign parties.'

US United States of America P91 Executive, Legislative and General Government P99 Nonclassifiable Establishments GOVT Draft regulations P91 P99 The Financial Times London Page 4 328
Australian poll too close to call Publication 930313FT Processed by FT 930313 By KEVIN BROWN SYDNEY

THE outcome of today's Australian federal election remained in doubt yesterday with polls showing sharp regional variations in support for the two main parties.

The Labor government is likely to lose seats to the conservative Liberal/National coalition in Western Australia, South Australia and Queensland, but could make gains in Victoria and Tasmania.

'It is too close to call. The different trends in different states mean the final outcome could be very close,' said Mr Sol Lebovic, director of the Newspoll organisation.

Mr Gary Morgan, another leading pollster, said support for the government had increased substantially following attacks on the coalition's proposals for a goods and services tax (GST).

'The issue is the economic mess the country is in, and the concern is the GST. If there was no GST the coalition would walk in,' he said. 'Labor must be the underdog but they still can win it.'

Mr Paul Keating, the prime minister, and Mr John Hewson, the conservative leader, both forecast a narrow victory for their own side. However, confidence appeared to be higher in the conservative camp.

The coalition was encouraged by a last-minute vote of confidence from all but one of Australia's main newspapers, which have frequently criticised opposition policies during the campaign.

The Australian, owned by Mr Rupert Murdoch's News Corporation, said the coalition was 'the best option' for economic reform, in spite of 'deep reservations' about some policies.

The coalition needs a net gain of five seats to win a majority in the 147-seat House of Representatives, which would be achieved by a uniform national swing of 0.9 per cent.

If the election is close, the result may not be known until next week because of the time required to count second and subsequent preferences under Australia's voting system.

A dead heat is also possible because of the postponement of the election in the marginal Queensland constituency of Dickson, following the death of one of the candidates. The Dickson poll will be held next month.

AU Australia P9111 Executive Offices GOVT Government News P9111 The Financial Times London Page 4 360
Wholesale prices rise by 0.4% Publication 930313FT Processed by FT 930313 By JUREK MARTIN

WHOLESALE prices in the US rose by 0.4 per cent in February compared with January, the largest monthly increase in more than two years but not necessarily a harbinger of new inflationary pressures.

Behind the increase in the producer price index - double the 0.2 per cent advance of January - were more expensive home heating oil, petrol, tobacco and new cars. Overall, the energy component of the index went up by 1.7 per cent.

Food prices, on the other hand, were generally slightly lower, with bigger falls recorded for a wide range of fruit and vegetables. Prices for finished goods other than food and energy, both subject to greater volatility, rose by 0.3 per cent in the month, under the 0.4 per cent increase of January.

Consumer prices in January rose by 0.5 per cent. The February report is due out next Wednesday and will be keenly watched for any evidence of an inflationary trend taking hold as the economy continues its recovery.

However, the consensus economic view, reinforced by the congressional testimony of the 12 regional presidents of the Federal Reserve system on Wednesday, remains one of relative price stability this year, though with some increases in view next year.

Meanwhile the Senate budget committee on Thursday night approved a resolution with more ambitious deficit reduction targets than proposed by President Bill Clinton.

More significant than the numbers, at this stage only notional guidelines since no actual programme cuts have been considered by Congress, is the fact that Democrats on the committee held the line in turning down no fewer than 34 Republican amendments.

US United States of America P8811 Private Households P99 Nonclassifiable Establishments COSTS Commodity prices COSTS Product prices P8811 P99 The Financial Times London Page 4 304
Liberal judge to quit supreme court Publication 930313FT Processed by FT 930313 By JUREK MARTIN

JUSTICE Harry Blackmun, one of the two most liberal members of the US Supreme Court, has said he expects to retire soon.

The 84-year-old Nixon appointee also announced that he thought Justice Byron White, the only Democratic appointee on the court but now one of its more conservative voices, might also soon quit. Last week the Washington Post reported that Justice White had hired no new office interns for the term beginning after the summer.

Justice Blackmun and Justice John Paul Stevens, named by President Ford, have operated to great effect in a court intended by Presidents Reagan and Bush to acquire a more conservative mould. Their judicial alliances with Justices Sandra Day O'Connor, David Souter and Anthony Kennedy, three swing votes who have sometimes confounded conservative expectations, have often frustrated the doctrinaire right wing judicial agenda on issues like abortion.

If the two justices retire, President Bill Clinton would be the first Democrat to make Supreme Court nominations since President John Kennedy appointed Justice White in 1962.

Other departures are possible, but Justice Blackmun said that unless Mr Clinton won a second term, when more vacancies might occur, he thought conservative predominance on the Supreme Court could last until the next century.

Mr Clinton is unlikely to find a judge more progressive than Justice Blackmun, though Justice White has more often than not voted with court conservatives. Mr Mario Cuomo, the governor of New York, is among those regularly mentioned as a possible Clinton nomination.

US United States of America P9211 Courts PEOP Personnel News P9211 The Financial Times London Page 4 277
Fears grow as N Korea quits nuclear treaty Publication 930313FT Processed by FT 930313 By JOHN BURTON, ALEXANDER NICOLL and TONY WALKER SEOUL, LONDON, BEIJING

NORTH KOREA yesterday raised fears of an international confrontation over its suspected nuclear weapons programme by declaring that it was withdrawing from the nuclear non-proliferation treaty.

The decision caused consternation among its Asian neighbours and in the West. North Korea would be the first country to scrap membership of the treaty, which seeks to limit the spread of nuclear technology.

Mr Warren Christopher, the US secretary of state, threatened North Korea yesterday with possible international sanctions. Asked if the US would push for United Nations sanctions against North Korea, he said: 'Certainly the North Korean situation is a serious one today and if they continue on the path that they are on I think that that will have to be considered.'

Japan, Germany and Britain also urged Pyongyang to reconsider the move, which Mr Kiichi Miyazawa, the Japanese prime minister, described as 'really dismaying'. Ms Madeleine Albright, US ambassador to the United Nations, said: 'We call upon North Korea to withdraw its declaration immediately.'

The decision would halt inspections by the International Atomic Energy Agency, which has carried out six inspections of North Korean facilities since Pyongyang permitted them last year.

The Vienna-based body said it was a 'grave step' and began preparations for an emergency board session next week to discuss a response.

The IAEA had given a deadline of March 25 for the government of Mr Kim Il-sung, a communist dictator, to permit inspections of two storage buildings at Yongbyon, North Korea's nuclear complex. It suspects the sites are being used to store nuclear waste for re-processing of plutonium.

However, Pyongyang responded that this was not possible at present because of the annual US/South Korean 'Team Spirit' military exercises, now under way. This week it placed the country on a 'semi-war' footing in response to the exercise, which was suspended last year in a goodwill gesture after the two Koreas signed a non-nuclear pact.

North Korea insists that the two sites are non-nuclear military installations of no concern to IAEA inspectors.

In Seoul, where the cabinet met in emergency session, the South Korean foreign ministry said: 'The North's professed reasons for pulling out of the treaty convince no one. This only heightens the suspicion that it is developing nuclear arms.'

The move threatened to undo recent progress in developing inter-Korean relations.

Expiry of the IAEA March 25 deadline could see the issue being transferred to the UN Security Council, which could impose sanctions for non-compliance.

China, a permanent member of the Security Council and one of North Korea's few remaining allies, issued a mild rebuke to North Korea. Behind its careful diplomatic phrasing, Beijing has had increasingly strained relations with Pyongyang and is likely to be exasperated by its behaviour.

KP North Korea, Asia P9721 International Affairs GOVT Government News P9721 The Financial Times London Page 3 493
Pyongyang digs in over weaponry: John Burton reports on North Korea's increasing isolation Publication 930313FT Processed by FT 930313 By JOHN BURTON

THE issue of North Korea's suspected nuclear weapons programme, which appeared to be approaching a resolution a few months ago, has become contentious again following Pyongyang's announcement yesterday that it is withdrawing from the nuclear non-proliferation treaty.

North Korea is believed to have started its nuclear research project in the mid-1960s as part of the juche (self-reliance) ideology of President Kim Il-sung to create an independent defence capability. The North Korean leader worried that he could no longer rely on Soviet military backing, after the fiasco of the 1962 Cuban missile crisis, if a second Korean war broke out.

It was similar concerns about US military commitment to South Korea in the 1970s that persuaded Seoul to try to develop a nuclear weapon, although the programme was eventually abandoned under US pressure.

Mr Tai Sung An, a respected US-based analyst of North Korea, argues that the country is seeking several objectives in its nuclear weapons programme. They include improving its negotiating leverage with South Korea and its allies, the US and Japan, and 'offsetting its looming loss of conventional military superiority relative to South Korea by building a nuclear strategic equaliser.'

Mr Kim Il-sung has developed a paranoid fear of nuclear attack from the US ever since that option was discussed during the Korean war 40 year ago, he says. The main goal of the North Korean nuclear programme is 'to deter nuclear attack from the United States by developing a local balance of nuclear terror on the Korean peninsula.'

As North Korea became increasingly isolated from its Russian and Chinese allies in the post-cold war period, it has expanded its facilities at the Yongbyon nuclear complex, 60 miles from Pyongyang, in an apparently accelerated effort to acquire a nuclear weapon.

It operates two small reactors at the site and is building a bigger 50-megawatt unit. It is also constructing what appears to be a large nuclear fuel reprocessing plant to extract weapons-grade plutonium from the spent nuclear fuel generated from the reactors.

However, there were also indications that Pyongyang realised its nuclear weapons programme was proving counterproductive as its economy deteriorated. Its need for foreign investment from South Korea, the US and Japan to revive the economy led it to make apparent concessions on the nuclear issue to reduce suspicions blocking ties with these countries.

It signed a non-nuclear pact with South Korea in late 1991 and agreed to allow scheduled inspections by the International Atomic Energy Agency last spring in belated compliance with its signing of the treaty in 1985.

But progress became bogged down after Seoul wanted to conduct challenge inspections of suspected but undisclosed nuclear facilities, while the IAEA demanded last month a special inspection of two buildings in the Yongbyon complex that it believed contained plutonium. The IAEA request pushed Pyongyang towards renouncing the treaty.

The obvious conclusion to draw from Pyongyang's action is that it has accumulated plutonium and feared that the IAEA would discover it. The US and Japanese governments claim that North Korea has already stockpiled enough plutonium to make at least one or two nuclear bombs.

Japanese officials estimate that North Korea has extracted between 16kg and 24kg of weapons-grade plutonium.

But there are other explanations for North Korea's apparently rash response. One is that the nuclear programme has become a key issue in power struggle between hardliners and reformers in Pyongyang. While the reformers were in the ascendant last year and successfully pushed for nuclear concessions in return for foreign investment, the hardliners might be gaining power now.

There has also been speculation recently that Kim Il-sung is seriously ill, which might have triggered a political fight.

Another explanation is that officials fear public discontent as the economy collapses and are creating a crisis atmosphere about a US threat, in the form of the current Team Spirit military exercise, to rally support behind the regime.

Pyongyang's growing isolation from the outside world may be strengthening its resolve to resist what it perceives as intrusions on its sovereignty, which it accused the IAEA of doing with its inspection demands.

Russian and Chinese diplomats recently cited this reason in warning that the West should not press North Korea too much on the nuclear issue and deny it room for diplomatic manoeuvring and the ability to save face.

KP North Korea, Asia P9721 International Affairs GOVT Government News P9721 The Financial Times London Page 3 753
Former ally heads Seoul opposition Publication 930313FT Processed by FT 930313 By JOHN BURTON SEOUL

A FORMER political ally of the South Korean president was elected yesterday as the leader of the country's main opposition Democratic Party, writes John Burton in Seoul.

Mr Lee Ki-taek succeeds Mr Kim Dae-jung, who retired after being defeated in the presidential election last December. Mr Lee's election follows a power struggle within the party, which holds 97 of the 299 seats in the National Assembly.

But it is still threatened with dissension and a possible break-up, which could improve the parliamentary position of President Kim Young-sam's government. Mr Lee represents a minority faction that joined the Democratic Party in 1991. The party is dominated by followers of Mr Kim Dae-jung who mainly come from the south-western Cholla region which historically has been at odds with the central government in Seoul.

Mr Lee was a member of President Kim's former opposition party. When Mr Kim decided to merge his party with the government in 1990, Mr Lee stayed in opposition, joining the Democratic Party a year later.

KR South Korea, Asia P8651 Political Organizations PEOP Appointments P8651 The Financial Times London Page 3 197
Japan grows by 1.5% in 1992 Publication 930313FT Processed by FT 930313 By ROBERT THOMSON TOKYO

JAPAN'S economy grew by 1.5 per cent last year, the slowest rate of growth in 18 years, after domestic demand continued to weaken in the final quarter. The news prompted further calls yesterday for an emergency economic package.

Much of the growth for the year was generated by an increase in exports, as the slim 0.1 per cent expansion in the October to December quarter came in spite of a 0.5 per cent contraction in personal consumption and private investment.

But the annualised 0.5 per cent growth during the final quarter did prevent Japan from experiencing a second quarter of negative growth, and thus falling technically into recession. The economy contracted by 2.4 per cent during the third quarter, the first such decline in three years.

The Economic Planning Agency conceded yesterday Japan was unlikely to reach its official target of 1.6 per cent growth for the fiscal year which ends this month, and hinted further stimulation would be needed if the target of 3.3 per cent growth next year was to be met.

Japan is under pressure from trading partners to meet these goals, as sluggish domestic demand is blamed for the country's surging trade surplus. Exports are continuing to increase by 2 to 3 per cent each month, while imports are falling by an average 6 per cent.

It is likely the country would have slipped into recession without a boost to public spending during the final quarter, when a Y10,700bn (Pounds 62bn) government package began to take effect. During the same period, private non-residential investment was 3.1 per cent lower, reflecting cuts in capital spending.

The weakness of private consumption and a continuing increase in personal savings have fuelled debate within the government over whether tax cuts are needed to encourage consumers to spend. The government is also considering incentives for home buyers and a new package of infrastructure spending.

Mr Kenneth Courtis, senior economist at Deutsche Bank Capital Markets Asia, suggested Japanese contractors 'can't dig ditches or build bridges fast enough'.

'If you look at the figures, Japan has been exporting its way out of recession, and something more must be done to stimulate domestic demand,' Mr Courtis said.

JP Japan, Asia P9611 Administration of General Economic Programs ECON Gross national product P9611 The Financial Times London Page 3 398
Singapore biscuit magnate charged Publication 930313FT Processed by FT 930313 By REUTER SINGAPORE

MR Rajan Pillai, a Singapore-based businessman nicknamed the 'Biscuit King' for his processed food empire, has been charged in court with offences under the local companies act, Reuter reports from Singapore.

Mr Pillai, 45, chairman of Singapore's Britannia Industries, pleaded not guilty. He was arrested on Wednesday and charged with having illegally authorised loans from Britannia to companies in which he had significant stakes to help them acquire Britannia shares.

He was released on bail of SDollars 500,000 (Pounds 214,788) after Thursday's hearing. A commercial affairs department official said his passport had been impounded.

Britannia is a holding company for several subsidiaries incorporated in India, Pakistan, Singapore, Malaysia, Hong Kong, New Zealand and Britain. They manufacture and market branded biscuits, cereals and other food.

Britannia's turnover in 1992 was more than Dollars 700m.

Mr Pillai is charged with sanctioning SDollars 10.68m in loans in November 1989 to a Liberian-incorporated company, Pacific Talon, to help it acquire Britannia shares. In December 1990, he is alleged to have lent SDollars 11.25m to Pacific to help it acquire more Britannia shares. Mr Pillai has a large stake in Pacific, the official said.

The offences are punishable with up to three years' jail or a SDollars 20,000 fine or both.

Britannia Industries SG Singapore, Asia P6719 Holding Companies, NEC P2051 Bread, Cake, and Related Products GOVT Legal issues PEOP Personnel News P6719 P2051 The Financial Times London Page 3 248
Mediators fail to sway Milosevic Publication 930313FT Processed by FT 930313 By ROBERT MAUTHNER PARIS

BOSNIA peace mediators Mr Cyrus Vance and Lord Owen last night left a meeting in Paris with Mr Slobodan Milosevic, the Serbian president, with no more than vague assurances that he will use his influence to back their peace plan.

After a meeting hosted by President Francois Mitterrand of France, followed by a dinner at the French Foreign Ministry, Lord Owen and Mr Vance expressed their habitual public optimism that the peace talks in New York were about to enter a more positive phase. It had been a good meeting and 'some progress' was made, they said.

However, apart from extracting a promise from Mr Milosevic that he would do his best to persuade the Bosnian Serb leader, Mr Radovan Karadzic, to attend the peace talks in New York next week, the mediators do not appear to have won any concrete commitments from the Serbian president. Indeed, he stressed after the first meeting with the mediators and Mr Mitterrand that he had no direct part to play in the peace negotiations. It was up to the warring parties to work out an agreement on the controversial map dividing Bosnia into 10 provinces.

Mr Milosevic's attempt to stand aside from the peace negotiations was not at all to the taste of the mediators, who had engineered the Paris meeting with the express objective of persuading Mr Milosevic to put pressure on Mr Karadzic.

Mr Mitterrand brandished both the carrot and the stick in his approach to the Serbian president. Though he gave a magisterial outline of Serbia's historical role in Europe, this was offset by his clear warning that, whatever the rights and wrongs of the situation in Bosnia, the international community was determined to take action against Belgrade (in the form of tighter sanctions) if the Serbs did nothing to help end the conflict in Bosnia.

Mr Vance and Lord Owen have returned to New York breathing confidence that their negotiations will resume next week, but on past experience, they cannot be sure that either Mr Karadzic or Mr Alija Izetbegovic, the Moslem Bosnian president, will turn up.

However, even if both attend the talks in New York, unless Mr Milosevic is prepared to play the ace that he undoubtedly holds, the prospects for peace must still be gloomy.

BA Bosnia-Hercegovina, East Europe P9721 International Affairs GOVT Government News P9721 The Financial Times London Page 2 410
Top-level talks continuing on solidarity pact Publication 930313FT Processed by FT 930313 By QUENTIN PEEL BONN

THE entire German political establishment was locked away behind the closed doors of the chancellor's office in Bonn yesterday, searching for signs of daylight in the fine detail of their 'solidarity pact' for east Germany, Quentin Peel writes from Bonn.

Chancellor Helmut Kohl, with a string of top government ministers, the main parliamentary party leaders, the 16 prime ministers of the federal states, and their finance ministers and advisers, agreed to carry on negotiating in working groups all evening, and meet again today, in an attempt to forge the political consensus they have been seeking since last September.

A formula has to be found to finance a spending gap of DM110bn (Pounds 46.6bn) in 1995 to pour more money into the collapsed eastern economy.

The signs last night were that there was clear movement towards a political compromise, although the final figures - at least on the burden sharing - may take a little longer to agree. The opposition Social Democrats have won the first battle to block any big social spending cuts.

Instead, they have agreed on a campaign to stop unemployment and social security swindles, and to identify further savings of more than DM3bn in other parts of the budget.

The other main move was a concession to the new states of east Germany for the government to shoulder a share of their DM51bn housing debt.

DE Germany, EC P9311 Finance, Taxation, and Monetary Policy P9611 Administration of General Economic Programs GOVT Government News P9311 P9611 The Financial Times London Page 2 269
French attack shellfish Publication 930313FT Processed by FT 930313 By ALICE RAWSTHORN PARIS

French fishermen yesterday renewed up their protests against rising fish imports by ransacking two refrigerated depots in the port of Saint-Brieuc. The fishermen emptied crates of South African and Australian shellfish on the the floor leaving the contents to rot, Alice Rawsthorn writes from Paris.

Meanwhile a number of French fishing vessels from Bayonne were damaged when they blockaded a Spanish patrol boat in French waters. The French authorities agreed to pay compensation to the owners of the damaged boats.

FR France, EC P0912 Finfish P4491 Marine Cargo Handling PEOP Personnel News GOVT Legal issues P0912 P4491 The Financial Times London Page 2 115
Argentina leads Gatt appeal Publication 930313FT Processed by FT 930313 By FRANCES WILLIAMS GENEVA

Nearly 40 rich and poor countries led by Argentina have appealed to the US, the EC and Japan to 'display leadership' in returning swiftly to the negotiating table in Geneva to complete the long-stalled global trade talks, Frances Williams reports from Geneva.

The letter, sent by President Carlos Menem of Argentina to the leaders of the three big traders on Thursday, urges the US administration to request only a short renewal of its negotiating mandate from Congress.

AR Argentina, South America US United States of America JP Japan, Asia QR European Economic Community (EC) P9721 International Affairs P9641 Regulation of Agricultural Marketing GOVT Government News P9721 P9641 The Financial Times London Page 2 126
Chinese vice-president dies Publication 930313FT Processed by FT 930313 By TONY WALKER BEIJING

General Wang Zhen, a hardline member of the Chinese leadership, died yesterday, on the eve of the National People's Congress, or parliament, which is expected to urge speedier economic liberalisation and further entrench reformists in power, Tony Walker writes from Beijing.

Gen Wang, 84 and a veteran of the Communists' 'Long March', was vice president, a largely ceremonial role. However, he remained active behind the scenes, and until quite recently was opposing what he considered hasty liberalisation.

CN China, Asia P91 Executive, Legislative and General Government PEOP Personnel News P91 The Financial Times London Page 2 108
Call for EC-wide television strategy Publication 930313FT Processed by FT 930313 By ANDREW HILL BRUSSELS

The European Community should develop a co-ordinated approach to advanced television technology, based on wide-screen broadcasts and a 'family' of digital television transmission standards, the European Commission said yesterday, reports Andrew Hill from Brussels.

Mr Martin Bangemann, EC industry commissioner, and Mr Joao de Deus Pinheiro, responsible for audiovisual policy, said a common approach to digital standardisation was the best way to 'reduce the risk of market fragmentation which a haphazard unco-ordinated approach could bring'.

But industry analysts warned yesterday that the Community risked repeating the errors of its original ill-fated HDTV strategy. This was based on a family of analogue standards, and was criticised for being driven by technology rather than consumer needs.

QR European Economic Community (EC) P9721 International Affairs P3651 Household Audio and Video Equipment P3663 Radio and TV Communications Equipment TECH Standards CMMT Comment & Analysis P9721 P3651 P3663 The Financial Times London Page 2 163
Italy's export credit agency chief arrested Publication 930313FT Processed by FT 930313 By ROBERT GRAHAM and HAIG SIMONIAN ROME, MILAN

THE Italian treasury has assured Sace, the country's state-run export credit guarantee agency, that it will continue to operate normally despite the arrest of Mr Roberto Ruberti, its chief executive, on charges of corruption.

Mr Ruberti was arrested on Thursday and five other key figures connected with Sace activities were warned by Rome magistrates they were under investigation.

These included Mr Vincenzo Martinez, the deputy chairman, Mr Giuseppe Mazza, director general of the Commerce Ministry and head of Sace's management committee, and Mr Roberto Bonfigli, an indemnities department executive.

According to Rome magistrates, Mr Ruberti is alleged to have received payment in return for providing insurance cover for overseas Italian contracting operations.

Sace, which was established in 1977, last year was providing credit guarantees for exports totalling L150,000bn (Pounds 68bn). Since its inception it has paid out indemnities totalling L9,597bn.

The management committee is composed of representatives of the treasury, foreign and commerce ministries, INA, the state insurance institute, and Mediocredito, the state credit institute.

Separately in Milan, police arrested Mr Pompeo Locatelli, the well-known financial consultant who played a decisive role advising the Eni state energy and chemicals group over the Enimont chemicals joint venture with Montedison in its final days.

He is accused of accepting stolen funds and illegal financing of political parties. The arrest follows allegations made by Mr Pier Francesco Pacini Battaglia, a Geneva-based Italian banker, who testified before magistrates earlier this week.

The allegations are said to relate to L3bn in illegal financing for the Socialist party, made in conjunction with Mr Silvano Larini, the playboy Socialist architect who gave himself up last month.

Mr Locatelli sprang to public notice in late 1990, when he was one of the main advisers to Eni in the negotiations over the future of Enimont. Many observers ascribe to him the complex procedure under which Eni and the Montedison chemicals group, the two warring partners in the joint venture, agreed for one to buy out the other.

That transaction, and other aspects of Enimont's affairs, are now under scrutiny in a separate strand to the current corruption investigations.

IT Italy, EC P6531 Real Estate Agents & Managers PEOP Personnel News GOVT Legal issues Ruberti, R Chief Executive Sace (Italy) P6531 The Financial Times London Page 2 397
Lisbon intervenes to defend escudo Publication 930313FT Processed by FT 930313 By PETER WISE LISBON

THE BANK of Portugal intervened heavily to defend the escudo yesterday after Mr Antonio Borges, its deputy governor, resigned in a rift with the government over monetary policy.

The escudo fell to a record low of DM94 before central bank buying pushed the currency back up to about DM92.75. The stock market also reacted to the uncertainties raised by Mr Borges' resignation with the the Bolsa de Valores de Lisboa index falling 1.15 per cent on the day.

Mr Borges resigned on Thursday night in reaction to a speech by Mr Jorge Braga de Macedo, finance minister, in which he criticised the central bank for failing to heed the needs of the real economy and lower interest rates.

Rumours were rife in financial markets yesterday that Mr Miguel Beleza, governor of the Bank of Portugal, might also resign unless he could secure a guarantee from Mr Anibal Cavaco Silva, prime minister, that the central bank would have full freedom to conduct exchange rate and monetary policy as it saw fit.

The divide between the government and the central bank on interest rates has been growing for several weeks. Mr Borges, responsible for exchange rate control, believes the escudo should be kept strong and interest rates should only be allowed to fall as inflation comes down.

He has warned this would mean heavy casualties, particularly among small and medium-sized companies, but was necessary to make the economy competitive and ensure the transfer of resources to efficient companies.

PT Portugal, EC P9311 Finance, Taxation, and Monetary Policy P601 Central Reserve Depositories ECON Balance of payments P9311 P601 The Financial Times London Page 2 285
Clean-up plan for east Germany Publication 930313FT Processed by FT 930313 By JUDY DEMPSEY BERLIN

THE German government yesterday unveiled a DM15bn (Pounds 6.3bn) clean-up budget, aimed in part to attract foreign investors, for one of eastern Germany's most polluted regions.

The federal government, through the Treuhandanstalt, the agency responsible for the privatisation of the eastern German economy, will provide up to DM15bn over the next five years.

'Germany has to carry the environmental burden, not the investor,' the Treuhandanstalt said yesterday, but added that the technical details about raising the money had yet to be decided.

In principle, the federal government has agreed to provide 75 per cent of the costs, while the state which is home to the pollution must meet the remaining quarter.

'The point is that no foreign investor is going to come and buy the large chemical industries or mining sector if they know they have to carry the clean-up bill as well,' the an Environmental Ministry official said.

The budget is earmarked for the triangle linking Halle, Leipzig and Bitterfeld, former centres of the chemical and lignite mining areas. These enterprises, each employing thousands of workers, remain under the control of the Treuhand. The agency's ability to sell them may be increased following this massive injection of capital.

DE Germany, EC P9311 Finance, Taxation, and Monetary Policy P9532 Urban and Community Development RES Pollution RES Capital expenditures P9311 P9532 The Financial Times London Page 2 240
UK troops reach safety after Bosnian blockade Publication 930313FT Processed by FT 930313 By REUTER BANJA KOVILJACA

BRITISH troops reached safety yesterday after spending 24 hours blockaded in a Moslem-held Bosnian village, the British army said, Reuter reports from Banja Koviljaca.

Eleven British soldiers and World Health Organisation doctor Simon Mardel, who is also British, arrived in the Serbian town of Banja Koviljaca, several hours after leaving the besieged Moslem village of Konjevic Polje.

The British went to Konjevic Polje on Thursday to act as an escort for a United Nations convoy sent to pick up people wounded in the fighting.

They had initially been prevented from leaving by crowds of women and children who wanted to make sure that all the wounded were evacuated, not just wounded women and children as stipulated by the Serbs.

Military spokesman Major Martin Waters said their officer had decided to pull out because their presence was attracting shellfire which was endangering the civilian population.

Shelling by Serbs killed and wounded a number of women and young children who were blockading the British soldiers.

Major Waters said two doctors had performed operations on the victims without the use of anaesthetic. 'There are quite a few dead, and six children under five were seriously injured, two with their legs blown off.' he said.

BA Bosnia-Hercegovina, East Europe GB United Kingdom, EC P97 National Security and International Affairs PEOP Personnel News P97 The Financial Times London Page 2 241
Yeltsin's deputy seeks help from G7 in Hong Kong: The west ponders how to initiate the tight economic policies needed to ensure aid to Russia is not wasted Publication 930313FT Processed by FT 930313 By IVO DAWNAY and LEYLA BOULTON LONDON, MOSCOW

A FLURRY of nervous behind-the-scenes diplomatic activity was under way last night as Mr Boris Fyodorov, a Russian deputy prime minister, flew to Hong Kong for an unprecedented meeting with officials of the Group of Seven leading industrial nations.

In spite of broad public declarations of support for President Boris Yeltsin in recent days, the G7 nations have stopped short of offering unconditional backing for him.

Instead, a senior British diplomat said in London that the G7 would only draw conclusions at the end of the two-day Hong Kong meeting, when it was hoped political developments in Moscow had become clearer. 'It is an extremely serious situation,' he said.

The G7 meeting was due to look at ways the industrial powers can maintain the reform process in Russia, including the question of further economic aid. But as the showdown between Mr Yeltsin and the Congress of People's Deputies has come to a climax, the agenda is certain to have taken on a more overtly political tone.

Both France and Germany have indicated that they favour an emergency G7 heads of government meeting, to be convened before the scheduled Tokyo summit in July. However, with the balance of power between Mr Yeltsin and the Congress still uncertain, the US and the UK remain cautious.

A more likely outcome will be a meeting of G7 finance and, possibly, foreign ministers to assess the outlook. That could be convened at short notice in order for its work to be completed before Mr Yeltsin's scheduled meeting with President Bill Clinton in Vancouver on April 3-4.

Despite a call from Mr Pierre Beregovoy, the French premier, on Thursday for more US and Japanese financial aid for Russia, many diplomats believe that economic support will have little bearing on what is now essentially a political power struggle.

As President Boris Yeltsin's political troubles help focus western minds on the need to accelerate assistance for his economic reforms, the question of how to deliver help becomes more urgent than ever.

One reason why the west has not produced large-scale finance for Russian economic reform is because of doubts that it would achieve its purpose. The banking and distribution systems are extremely primitive, capital flight and corruption are big problems, and the bureaucracy is slow and inept.

Even Mr Boris Fyodorov, the deputy prime minister for economics and finance who arrives in Hong Kong today for talks with the Group of Seven countries, agrees that stopping aid from being wasted is the biggest headache. Without tight economic policies, all would be lost.

The stakes are high. If the aid does not reach its targets, the risk of a political backlash against reform in Russia is heightened. If aid is not controlled, it might just provide a financial cushion to delay reform.

There is also pressure for aid to go beyond new loans. Much of the Dollars 24bn (Pounds 17bn) package promised by the west last year was limited to loans guaranteed by western governments for imports of western goods and equipment. A new emphasis would target western cash at projects to show concrete benefits and even help Russia generate hard currency.

The World Bank would lead such efforts, which include, for example, a plan to finance equipment to cap gas flares in Russia's oil industry.

This thinking is even being applied to the International Monetary Fund, last year charged with administering western financial assistance to Russia in return for reforms which never materialised.

Diplomats say the G7 is now considering the creation of a special fund, to be run by the IMF, to finance specific programmes. One - approved by the Russian premier, Mr Viktor Chernomyrdin - would organise five model bankruptcies in key sectors. This would warn enterprises squandering state support and instruct officials and judges on how to implement Russia's first bankruptcy law in 70 years.

Another idea is for the IMF to take on the burden of subsidies at present provided by Moscow to the former Soviet republics through the issue of credits from the Russian Central Bank. Mr Fyodorov says that last year Russia spent the equivalent of Dollars 18bn subsidising the former republics.

Technical assistance might also draw more on examples which have worked well so far. One model is the work of the International Finance Corporation, the World Bank's private sector development arm, which is working in the provinces to help local authorities privatise shops, big enterprises, and even land.

Mr Mikhail Gurtovoi, who last year headed a government commission to fight corruption until it was disbanded, suggests that plants equipped with western machinery but not completed under inefficient state management should simply be given to western companies. Completed and run by westerners, they would provide models of efficiency and jobs.

Man in the News, Page 8

RU Russia, East Europe GB United Kingdom, EC JP Japan, Asia CA Canada IT Italy, EC FR France, EC DE Germany, EC US United States of America P9721 International Affairs GOVT Government News P9721 The Financial Times London Page 2 876
Lisbon intervenes to defend escudo: Resignation of Bank deputy puts pressure on currency Publication 930313FT Processed by FT 930313 By PETER WISE LISBON

THE BANK of Portugal intervened heavily to defend the escudo yesterday after Mr Antonio Borges, its deputy governor, resigned in a rift with the government over monetary policy.

The escudo fell to a record low of DM94 before central bank buying pushed the currency back up to about DM92.75. The stock market also reacted to the uncertainties raised by Mr Borges' resignation with the the Bolsa de Valores de Lisboa index falling 1.15 per cent on the day.

Mr Jose Fonseca Goncalves, an analyst with Totta Dealer, said: 'Mr Borges was someone they could depend on for a firm policy line. Now nobody is sure what to expect.'

Mr Borges resigned on Thursday night in reaction to a speech by Mr Jorge Braga de Macedo, finance minister, in which he criticised the central bank for failing to heed the needs of the real economy and lower interest rates.

Rumours were rife in financial markets yesterday that Mr Miguel Beleza, governor of the Bank of Portugal, might also resign unless he could secure a guarantee from Mr Anibal Cavaco Silva, prime minister, that the central bank would have full freedom to conduct exchange rate and monetary policy as it saw fit.

The divide between the government and the central bank on interest rates has been growing for several weeks. Mr Borges, responsible for exchange rate control, believes that the escudo should be kept strong and interest rates should only be allowed to fall as inflation comes down.

He has warned that this would mean heavy casualties, particularly among small and medium-sized companies that make up the bulk of Portuguese industry. But, he argued, it was a necessary step to make the economy more competitive and ensure the transfer of resources to efficient firms.

Mr Braga de Macedo, under pressure from export companies caught between the high cost of money and the strength of the escudo, favours a more rapid descent of interest rates.

Interest rates have been falling steadily in Portugal as inflation came down from 11.4 per cent in 1991 to 8.9 per cent in 1992.

But there remains a wide difference between prime rates offered to the best companies and the much higher rates available to small companies.

The central bank has been regularly drawing from massive foreign exchange reserves to defend the escudo. But it took the unusual step yesterday of publically acknowledging heavy intervention.

PT Portugal, EC P9311 Finance, Taxation, and Monetary Policy P601 Central Reserve Depositories ECON Balance of payments P9311 P601 The Financial Times London Page 2 444
Tough times on catwalk leave designers struggling Publication 930313FT Processed by FT 930313 By ALICE RAWSTHORN

THE LATEST Paris ready-to-wear fashion collections kicked off in the Louvre yesterday against a drab economic backdrop and a row among the leading designers which threatens to split the French fashion industry.

The Paris designers, which flourished in the buoyant 1980s, are now struggling in more competitive conditions.

Sales of French designer fashions have fallen sharply since the peak of FFr5bn (Pounds 627m) in 1990 to just FFr4.3bn last year, according to the Chambre Syndicale, which represents the industry.

This season the Paris fashion houses are hoping for an improvement in US demand, but expect further problems with Japan. They also face the handicap of the strong French franc, which makes it more difficult for them to compete against the Milan and New York designers.

Yves Saint Laurent, one of the leading Paris houses, was forced this year to sell out to Elf-Sanofi, the state-controlled French pharmaceuticals group. Others, including Givenchy and Jean-Louis Scherrer, have shed staff. Philippe Venet, an old established couture business, last month fired its entire workforce.

This week's ready-to-wear collections have a subdued air. Yohji Yamamoto and Commes des Garcons, the Japanese designers, are staging small shows instead of their usual lavish events in the Louvre. Jean-Paul Gaultier, the French designer known for his theatrical collections, is holding a small show in his shop. Martin Margiela, leader of the younger avant garde, is not showing at all.

Meanwhile the whole industry has been flung into chaos by a row between Mr Pierre Berge, YSL's chairman, and the Chambre Syndicale. YSL last month broke away from the Chambre Syndicale, which organises the Paris shows, after Mr Berge was ousted as head of the ready-to-wear section.

Mr Berge is now trying to persuade other designers to join YSL in staging their own shops under a new organisation.

If he succeeds, retail buyers and journalists would have to choose between two separate sets of fashion shows possibly held on different dates, thereby weakening Paris' position as the centre of international fashion.

FR France, EC P23 Apparel and Other Textile Products P56 Apparel and Accessory Stores P7999 Amusement and Recreation, NEC MKTS Sales P23 P56 P7999 The Financial Times London Page 2 377
Conservatives move up, ecologists fall back in French poll Publication 930313FT Processed by FT 930313 By ALICE RAWSTHORN PARIS

WITH a week to go before the first round of voting in France's parliamentary election, the conservative coalition is still gaining ground over the ruling Socialists in the polls.

The Socialists now command the support of 18 per cent of the electorate, according to a BVA poll in today's Liberation newspaper. This leaves the ruling party behind both centre-right parties.

The RPR is edging ahead of the UDF, with 20 per cent to 19 per cent.

Meanwhile the ecologists, who earlier in the campaign threatened to beat the Socialists into second place, are now losing momentum. Support for the ecologist alliance has slipped to 12 per cent from 14.5 per cent a month ago.

The new poll suggests the RPR will emerge as the largest single force in the National Assembly, with 228 seats, against 198 for the UDF. This should give the RPR an advantage in the allocation of ministerial positions and possibly influence President Francois Mitterrand in his choice of prime minister.

The president was yesterday embroiled in controversy over allegations by Liberation newspaper that his security staff at the Elysee Palace had in the mid-1980s made requests to bug the telephones of scores of prominent figures, including the actress Ms Carole Bouquet and the writer Mr Jean-Edern Hallier. Last week Liberation claimed that Elysee staff had tapped the phone of Mr Edwy Plenel, an investigative journalist.

FR France, EC P9121 Legislative Bodies P8651 Political Organizations STATS Statistics P9121 P8651 The Financial Times London Page 2 266
Japan-Brazil accord signed Publication 930313FT Processed by FT 930313 By CHRISTINA LAMB RIO DE JANEIRO

An accord was signed yesterday for Japan's first financing of environmental projects in Brazil, for a total of Dollars 840m, through its Overseas Economic Co-operation Fund, Christina Lamb reports from Rio de Janeiro.

The money is destined for a co-financing project with the Interamerican Development Bank for cleaning up the Rio bay, as well as the depollution of the Tiete river, which runs through Sao Paulo, and the construction of a recycling unit in Sao Paulo.

JP Japan, Asia BR Brazil, South America P951 Environmental Quality P9721 International Affairs RES Capital expenditures P951 P9721 The Financial Times London Page 2 114
World News in Brief: Sun sets on Eldorado Publication 930313FT Processed by FT 930313

The BBC is to scrap its flop soap serial Eldorado in July. The decision to axe the Pounds 10m series, filmed in a specially-built village in Spain, was the first by Alan Yentob as BBC controller of programmes.

British Broadcasting Corp GB United Kingdom, EC P4833 Television Broadcasting Stations TECH Services P4833 The Financial Times London Page 1 72
Yeltsin to test nation's allegiance: Threat of chaos and 'civil war' Publication 930313FT Processed by FT 930313 By JOHN LLOYD and DMITRI VOLKOV MOSCOW

PRESIDENT Boris Yeltsin yesterday challenged Russia's conservative-dominated parliament to a political duel for the allegiance of the country.

Facing further attempts to curtail his power, Mr Yeltsin walked out of the Russian Congress of Peoples' Deputies to take his cause of a strengthened presidency, economic reform and constitutional change to the people.

Both his supporters and enemies emphasised the risks being run by their inability to compromise. Mr Sergei Shakrai, a deputy prime minister and a close aide to Mr Yeltsin, said the Congress 'has led the country to a threshold after which lies the road to revolution, chaos and the rule of the street'.

Mr Sergei Baburin, a leader of the hardline nationalist Russian Unity group, said that once the question of relative strength was posed between the president and the parliament, 'then the state is on the verge of a civil war'.

Concern in the west at events in Moscow was evident in remarks by President Bill Clinton, who told reporters: 'I support democracy in Russia and the movement to a market economy, and Boris Yeltsin is the elected president of Russia.'

The Group of Seven leading industrial nations have, however, so far stopped short of offering Mr Yeltsin unconditional backing. Mr Boris Fyodorov, a deputy prime minister, flew to Hong Kong to meet G7 officials exploring ways to maintain the reform process in Russia, including possible further economic aid.

Fears over the growing crisis in Moscow also helped push share prices lower across Europe and the US. At the Congress, when it became plain that deputies would finally pass a resolution which reduces the presidential office to one occupied on the sufferance of parliament, Mr Yeltsin took the rostrum to say that their decision would create 'a power vacuum which would weaken Russia'.

If his proposed amendments were not passed, said Mr Yeltsin, he would take 'additional measures to retain the power balance in the country'. In spite of shouts of alarm, he - and later his aides - made clear that what he had in mind was a referendum, to be held in April, on the supremacy of the presidency and the private ownership of land.

Mr Vyacheslav Kostikov, the presidential press secretary, said Mr Yeltsin 'understands he has only one partner left with whom he can talk. This is the people'. He is expected to address the nation on television today.

Mr Shakrai said the referendum was constitutionally valid. The president's legal service holds that the original pact in December between president and Congress to go to the people on the nature of the constitution cannot be repealed. Congress, however, earlier this week unfroze an article of the constitution which allows parliament to dismiss the president if it considers he has acted unconstitutionally.

Mr Vladimir Shumeiko, the first deputy prime minister, said last night that a meeting during the session between Mr Yeltsin, Mr Ruslan Khasbulatov, the combative parliamentary speaker, and Mr Valery Zorkin, head of the Constitutional Court, produced nothing more than an invitation from Mr Khasbulatov for the president again to address the Congress.

Mr Khasbulatov commanded Congress to sit for a fourth day today because, he said, 'we should watch most attentively how the executive branch of government (Mr Yeltsin) observes the constitution'. On the agenda are the proposed referendum and the possibility of early elections.

Congress or its smaller permanent body, the Supreme Soviet, must either now respond to Mr Yeltsin's challenge by moving towards declaring his actions unconstitutional - or attempt to seek an accord with him.

West ponders aid, Page 2 Textbook leader, Page 8 World stocks, Page 21

RU Russia, East Europe P9121 Legislative Bodies PEOP Personnel News P9121 The Financial Times London Page 1 640
Stock and Currency Markets Publication 930313FT Processed by FT 930313

----------------------------------------------------- STOCK MARKET INDICES ----------------------------------------------------- FT-SE 100: 2915.9 (-37.5) Yield 4.15 FT-SE Eurotrack 100 1145.86 (-17.74) FT-A All-Share 1421.34 (-1.1%) FT-A World Index 146.45 (-0.7%) Nikkei 18,037.52 (+132.73) New York close: Dow Jones Ind Ave 3,427.82 (-29.18) S&P Composite 449.83 (-3.89) ----------------------------------------------------- US CLOSING RATES ----------------------------------------------------- Federal Funds: 2 15/16% (3%) 3-mo Treas Bills: Yld 3.013% (3.103%) Long Bond 103 1/4 (104 21/32) Yield 6.865% (6.757%) ----------------------------------------------------- LONDON MONEY ----------------------------------------------------- 3-mo Interbank 5 15/16% (same) Liffe long gilt future: Jun 106 29/32 (Jun 106 1/2) ----------------------------------------------------- NORTH SEA OIL (Argus) ----------------------------------------------------- Brent 15-day (April) dollars 18.71 (18.60) Gold New York Comex Apr dollars 328.5 (327.6) London dollars 327.75 (327.15) ----------------------------------------------------- STERLING ----------------------------------------------------- New York close: dollars 1.43235 (1.431) London: dollars 1.434 (1.4365) DM 2.3875 (2.385) FFr 8.12 (8.1025) SFr 2.1825 (2.1875) Y 168.75 (same) pounds Index 77.3 (77.2) -----------------------------------------------------

DOLLAR ----------------------------------------------------- New York close: DM 1.665 (1.66135) FFr 5.658 (5.6432) SFr 1.52 (1.52285) Y 118.065 (117.55) London: DM 1.6655 (1.6605) FFr 5.6625 (5.64) SFr 1.5225 (1.5235) Y 117.75 (117.55) dollars Index 66.7 (same) Tokyo close Y 117.85 -----------------------------------------------------

GB United Kingdom, EC P6231 Security and Commodity Exchanges P1311 Crude Petroleum and Natural Gas P3339 Primary Nonferrous Metals, NEC COSTS Commodity prices COSTS Equity prices P6231 P1311 P3339 The Financial Times London Page 1 222
Pounds 900m plan for west coast rail upgrade Publication 930313FT Processed by FT 930313 By ANDREW TAYLOR, Construction Correspondent

THREE of Britain's biggest engineering companies have proposed a Pounds 900m scheme to raise private finance for much-needed improvements to the main west coast railway line between London and Glasgow.

GEC Alsthom, Trafalgar House and Balfour Beatty, the construction arm of BICC, would recoup their costs by charging train operators a fee for using the upgraded track.

The consortium would not own the track but would charge fees under a concession which would run for an agreed number of years. This would be similar to concessions granted to operators of the Channel tunnel and the new toll bridge across the River Thames at Dartford.

The proposal has been submitted to Mr John MacGregor, transport secretary, who is currently considering the privatisation of British Rail. The government plans that track ownership would be transferred to a new state-owned body called Railtrack. This would still leave the problem of how to raise cash to pay for track, signalling and rolling stock improvements when the government is trying to restrain growth in public-sector spending.

British Rail InterCity last year asked for punctuality standards, under the Passenger's Charter, to be lowered on the 400-mile west coast main line because lack of investment was making services unreliable.

Under the consortium's plan, private finance would be raised to pay for track replacement, improved electrical and signalling systems, realignment of some curved sections of track to allow faster train speeds, and replacement of some bridges.

Included in the Pounds 900m bill is Pounds 250m-Pounds 300m for new rolling stock to be provided by GEC Alsthom. The proposals include improved links from the main line to Birmingham, Stoke-on-Trent, Liverpool and Manchester.

Balfour Beatty provided the overhead systems for the Pounds 515m public sector electrification of the east coast main line between London and Edinburgh. Trafalgar House is a member of the private sector consortium which built the Dartford Bridge and a member of a consortium which has won a concession to build a privately financed toll road around part of Birmingham.

The government has been trying to encourage private sector investors to take advantage of Treasury rule changes which should make it easier to raise private finance for infrastructure projects.

GEC Alsthom Trafalgar House Balfour Beatty GB United Kingdom, EC P1629 Heavy Construction, NEC P401 Railroads RES Facilities RES Capital expenditures P1629 P401 The Financial Times London Page 1 410
Acquittals in car park spying trial Publication 930313FT Processed by FT 930313 By JOHN MASON, Law Courts Correspondent

AN INDUSTRIAL espionage trial, involving National Car Parks, ended yesterday with the acquittals of both defendants and calls for reform of the law affecting the operation of private security companies.

After a two-month trial, Mr Gordon Layton, chief executive of NCP, the leading car parks operator, and Mr Simon Hewitt, a former manager with KAS, a now defunct security company, were acquitted of conspiring to defraud rival Europarks.

The case has been regarded within the legal profession as the most important example of industrial espionage to come before the courts and a test of current legislation.

The Old Bailey jury heard how, at Mr Layton's request, KAS - the company formed by the late Sir David Stirling, the founder of Britain's Special Air Service - carried out a three-year espionage operation against Europarks to acquire confidential information.

The methods included surveillance of directors, searches of offices and the infiltration of 'moles' into the rival company.

The two defendants argued they thought the operation was inside the law and had not been intended to damage Europarks.

After their acquittals, Judge Richard Hawkins turned down applications from both men for their costs to be met from public funds. Lawyers for Mr Layton said: 'The fact that the trial took place at all has shown the law relating to private security services to be in a very unsatisfactory state and in need of clarification.'

NCP had remained confident of Mr Layton's innocence and he would now return to his work as chief executive, they said.

After the verdicts, the prosecution dropped charges against two others involved in the espionage operation - Mr Ian Crooke, a former SAS colonel and KAS manager, and Ms Jane Turpin, a former Army captain who had infiltrated Europarks for KAS.

Industrial espionage laws, Page 6

National Car Parks KAS GB United Kingdom, EC P7521 Automobile Parking P7549 Automotive Services, NEC P7381 Detective and Armored Car Services GOVT Legal issues P7521 P7549 P7381 The Financial Times London Page 1 348
International Company News: Dayton Hudson ahead at Dollars 383m Publication 930312FT Processed by FT 930609 By NIKKI TAIT

DAYTON Hudson, the large US department store group, saw after-tax profits of Dollars 383m in the year to end-January, up from Dollars 301m previously on sales of Dollars 17.9bn, up from Dollars 16.1bn, writes Nikki Tait.

In the fourth quarter, Dayton - which includes the Marshall Fields chain and Target discount stores - saw net profits rise from Dollars 192m to Dollars 249m.

Dayton Hudson Corp US United States of America P5311 Department Stores FIN Annual report P5311 The Financial Times London Page 27 101
International Capital Markets: Bell Atlantic cuts stake in Telecom NZ Publication 930312FT Processed by FT 930511 By TRACY CORRIGAN and REUTER

BARCLAYS de Zoete Wedd has bought 109m shares in Telecom Corporation of New Zealand, worth around NZDollars 297m (Dollars 156m), from Bell Atlantic Holdings, reducing Bell's stake by 4 percentage points to just under 30 per cent.

The New Zealand government sold Telecom NZ to the local subsidiaries of two US telecommunications companies, Bell Atlantic and Ameritech, in 1990, with the requirement that they should reduce their joint holding to under 50 per cent by September 1994 (recently extended from September 1993).

BZW is distributing the shares to investors in Europe and elsewhere, in conjunction with ABN Amro and Caisse des Depots.

Nomura Securities will open a branch in the Japanese city of Akashi, Reuter reports. The new branch raises Nomura's retail network to 149 outlets.

Barclays de Zoete Wedd Telecom Corp of New Zealand Bell Atlantic Corp Nomura Securities NZ New Zealand JP Japan, Asia P481 Telephone Communications P6211 Security Brokers and Dealers COMP Shareholding MKTS Market data RES Facilities COMP Company News P481 P6211 The Financial Times London Page 29 192
London Stock Exchange: GrandMet firm Publication 930312FT Processed by FT 930330 By CHRISTOPHER PRICE, JOEL KIBAZO and STEVE THOMPSON

Talk of sluggish demand and fierce competition continued to drag on the drinks sector, with investors shunning domestic stocks and turning to Grand Metropolitan, where analysts have returned from recent meetings with an upbeat message. The US vegetable business has begun to recover, and with half its profits earned in dollars the group is also a big beneficiary of recent currency movements. Analysts also pointed out Grand Met's low exposure to the weak Scotch market and the upturn in its own drinks business. The shares added 8 to 479p in turnover of 3.9m.

Bass continued to suffer a hangover from the recent spate of downgrades and the shares slipped 8 to 575p, dragging with it Whitbread 'A', off 4 at 477p.

Turnover in BTR soared to 10m after the company cheered the market with 1992 results that topped the Pounds 1bn mark for the first time. Profits at the international conglomerate improved by 18 per cent to Pounds 1.085bn and investors are to receive a higher than anticipated final dividend.

The shares jumped 25 to 612p as brokers moved to upgrade current year profit estimates. The range of predictions for this year's profits is between Pounds 1.25bn and Pounds 1.28bn, with BZW top of the range on Pounds 1.30bn.

Preliminary results from Enterprise Oil proved a disappointment to the market with the increase in the dividend fully expected. A number of specialists expressed concern over the group's exploration record during 1992 and said the company's 'finding costs' had risen sharply. Enterprise shares closed 10 down at 497p.

The rest of the oil sector found it hard to make any fresh progress, reacting to the slide in crude oil prices, where April Brent dipped below Dollars 19 a barrel, amid worries that Kuwait may leave Opec.

Lasmo endured more sustained selling pressure, the shares slipping a further 6 to 181p with dealers openly speculating about the likelihood of a cut in the dividend when the preliminary figures are published on March 24.

Standard Chartered, which powered to a five and a half-year high after revealing preliminary figures on Wednesday, gave up 13 to 703p.

Refuge was the pick of the life sector, the shares advancing 26 to 1020p after the much better than expected 8.6 per cent rise in the dividend. Britannic, which has a 9 per cent stake in Refuge, climbed 20 to 1270p.

Willis Corroon raced up 18 to 208p with First Boston, the US investment bank, said to have been an aggressive buyer of the stock.

A small number of brokers, notably Kleinwort Benson, were said to have turned more positive on Dixons, with the Silo subsidiary in the US the focus of attention. The shares gained 4 to 235p.

Marks and Spencer continued to attract investors attention on the back of its low historic rating and rumours of good sales. The shares rose 7 to 359p in chunky turnover of 7.8m.

Covering of positions by one marketmaker squeezed Iceland Frozen Foods up 23 at one stage, before slipping to close 15 ahead at 738p.

A buy recommendation from Lehman brothers coupled with an upgrading of profit expectations from NatWest Securities boosted BAA and the shares ended 7 better at 800p.

Shares in Rolls-Royce had a volatile session as the company reported results. They fell initially as the market reacted to a loss of Pounds 184m, far greater than anticipated, but including an exceptional charge of Pounds 268m. This was however later taken by the market to be a positive restructuring move that should benefit the company and taken with the lower than anticipated dividend cut, helped the shares rally to close a net 2 1/2 better at 131 1/2 p, in hefty trade of 17m. Mr Keith Hodgkinson at Lehman Brothers - who said 'it looks like the company has actually got to grips with the problems' - is predicting profits for this year of Pounds 115m. Mr Clive Forrestier-Walker at Charter House Tilney is more cautious and has penciled in Pounds 95m for 1993 profits.

Elsewhere in the sector, the improved dividend at TI Group as it reported figures helped the shares add 6 to 316p.

Amstrad jumped 4 1/4 to 35 1/2 p on turnover of 20m shares, the heaviest since July last year, after news that it will launch a 'personal digital assistant' computer in London next week.

Grand Metropolitan Bass Whitbread BTR Enterprise Oil Willis Corroon Group Marks and Spencer Iceland Frozen Foods LASMO GB United Kingdom, EC P2038 Frozen Specialties, NEC P6411 Insurance Agents, Brokers, and Service P6231 Security and Commodity Exchanges P2082 Malt Beverages P4512 Air Transportation, Scheduled P1311 Crude Petroleum and Natural Gas P5731 Radio, Television, and Electronic Stores P5399 Miscellaneous General Merchandise Stores P56 Apparel and Accessory Stores P30 Rubber and Miscellaneous Plastics Products MKTS Market data CMMT Comment & Analysis P2038 P6411 P6231 P2082 P4512 P1311 P5731 P5399 P56 P30 The Financial Times London Page 40 836
People: Insurance moves Publication 930312FT Processed by FT 930330

Nigel Daniels, director of the quality services division of IRPC Group, has also been appointed joint md of WILLIS CORROON Product Safety.

Willis Corroon Group GB United Kingdom, EC P6411 Insurance Agents, Brokers, and Service PEOP Appointments P6411 The Financial Times London Page 13 52
International Company News: SIP to expand capital by L736bn Publication 930312FT Processed by FT 930318 By HAIG SIMONIAN MILAN

SIP, Italy's main telephone utility, yesterday announced a rights issue of up to L736bn (Dollars 494m), undeterred by a drop in profits to L460.6bn in 1992 from L486.4bn in 1991.

The capital increase, on the basis of 13 new ordinary shares at L1,200 each for every 100 ordinary or savings shares held, provoked mixed feelings among analysts. Although widely discounted in the market, the latest increase follows a string of money-raising exercises by Italy's state-controlled telecoms groups.

'We don't think it's that all bad,' said one dealer. 'The trouble is, the amount is relatively small, leading to fears that SIP may be planning another capital increase soon'. SIP shares, which closed at L1,660 in Milan, before the deal was announced, slipped by L10 on London's SEAQ system.

Group turnover rose by 10.8 per cent to L21,557bn, while gross earnings jumped by 36.8 per cent to L998.2bn. The dividend remained unchanged at L75 for ordinary shares and L95 for savings stock.

Societa Italiana per l'Esercizio delle Telecommunicazioni IT Italy, EC P4813 Telephone Communications, Ex Radio FIN Share issues P4813 The Financial Times International Page 16 203