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independent directors were fearful they had boo-booed when rejecting an earlier indicative takeover offer of ÂŁ10 a share from and Stefano Pessina.

They and their bankers have subsequently calculated that a tenner is pretty close to fair value for the shares, on the basis of Boots’s strategy and prospects. So the directors would have looked pretty fair plonkers in the City (though probably not elsewhere) if the bidders had walked away.

But they're out of jail: KKR and Pessina are back with ÂŁ10.40. It means that Boots's long history as a listed business is probably almost over. My prediction is that it will soon be owned by private equity - probably by KKR/Pessina, or just possibly by one of the other private equity firms mulling a counter-offer ( and are the supposed rivals).

I've written a few times about why this takeover matters and why not everyone thinks it's a good idea. And although I think it will go through, I’ve uncovered one possibly serious obstacle to completion of the deal: the competition authority, the .

Bear with me here, because the reason for a possible OFT intervention is not straightforward.

Item one: a few years ago Sainsbury gave preliminary consideration to a . What I’ve discovered is that it sought guidance from the Office of Fair Trading about whether the competition issues would be serious enough to prompt a reference to the Competition Commission. And the OFT gave confidential guidance that a reference to the Commission of a Sainsbury/Boots combination was highly likely.

Item two: Sainsbury and Boots are not at this time contemplating a merger. But KKR wants to buy Boots. And it is also part of the consortium that wants to buy Sainsbury. If it succeeds, both Boots and Sainsbury would become part of the KKR empire (though KKR would of course argue that they would be managed wholly separately).

Item three: It is by no means certain that the consortium of KKR, , Blackstone and will eventually table a formal offer for Sainsbury. That depends on whether the trustees of Sainsbury’s pension fund demand that the consortium injects close to £500m into their fund (in which case a bid at a price acceptable to Sainsbury’s board is likely to be tabled by the consortium) or whether the injection would be £1bn (where it becomes harder for the consortium to make the numbers work).

Item four: I’ll wager that a formal bid by the KKR consortium for Sainsbury is eventually tabled.

Item five: If both bids were to succeed, KKR would become a powerful owner of two companies with substantial shares of the UK retail healthcare market, Boots and Sainsbury. The OFT would need to look at the deals very carefully and might well refer them to the Competition Commission for lengthy scrutiny.

Now I’m not saying there will be a reference to the Commission. There are too many hypotheticals for me to be confident of that. But there is a genuine question about whether KKR should be able to purchase the ability to exercise significant influence over two competing companies with strategically important positions in the important markets for healthcare, pharmaceuticals and toiletries.

UPDATE 07:48 31/03/2007 I'm away for a couple of weeks and won't be writing new commentary for Peston's Picks till mid April.

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It’s the death of probably the most generous shareholder perk in the history of shareholder perks. Some 5,400 founder shareholders of Eurotunnel are to lose their right to unlimited lifetime travel through the Channel tunnel and a further 6,300 shareholders will lose their entitlement to free travel twice a year.

They are the victims of the financial reconstruction of the perennially profit-challenged business that is currently in process. Buried away at the back of the registration document for Groupe Eurotunnel SA and Eurotunnel Group UK PLC - which was published on Friday - is a brief statement that there will henceforth be only one set of perks for all Eurotunnel shareholders, namely a 30 per cent discount on three return crossings for those holding a minimum number of shares for a certain period.

It’s hard not to wince on behalf of those who’ve enjoyed the unlimited travel perk. Wily investors who bought a minimum of 1500 shares in 1987 were told they could go back and forth through the tunnel as many times as they liked till 2042.

That perk has been worth a mint to the holders. But the corollary is that Eurotunnel says that it simply can’t afford the giveaway any longer.

However I suspect those 5,400 holders are not the least sophisticated investors in the UK. And some may investigate whether there’s the possibility of a legal challenge to Eurotunnel’s unkind cut - which after all its recent woes, Eurotunnel could definitely do without.

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Most private equity firms claim that they contribute more to the businesses they buy than the injection of relatively cheap debt – although, as I explained here on 15 February, much of the super-normal returns they’ve generated over the past few years has come from little more than loading up their investments with borrowings at a time when markets are rising.

Thus it has emerged from Blackstone’s recent filing with the SEC, prior to the imminent flotation of its management company, that it has probably borrowed in the order of $80bn for its portfolio of companies over the past three years or so. That’s on a par with what even Gordon Brown has been borrowing recently.

This process of “leveraging up” balance sheets isn’t rocket science. Listed companies could do it without selling themselves to private equity investors – but on the whole choose not to do so, because their conventional institutional shareholders generally don’t like the risks that come with the increase in borrowing.

There’s something unsettling about the contrasting appetites for risks of the institutional shareholders on the one hand and the debt-providers, which are often the same institutional shareholders wearing a different hat (as well as hedge funds and investment banks). The debt-providers lend on repayment terms and at rates of interest that imply that they are blind to the risks perceived by equity providers.

The recent trend for some loans to private equity to be so-called “covenant-lite,” giving only limited rights to the lenders to demand repayment when the going gets tough, may be the manifestation of the acute phase of market madness.

It’s a mania induced by excessive global liquidity. Or to put it another way, there is so much cash sloshing around the system looking for a home that much of it has been and will be lent or invested stupidly.

Another manifestation of this madness may be the attempts by private equity to buy Alliance Boots and Sainsbury. In both these cases, if the bids are successful, the current senior executives and their respective operational strategies are expected to be retained. The only big changes will be to their balance sheets: property will be stripped out, debt will be piled on.

There’s something intrinsically fatuous about deals that appear to be driven by simple financial engineering. It’s not as if either of these companies is in dire straits or in need of a structural overhaul, as shown by trading statements and have issued today.

The corollary won’t please the critics of private equity: it’s that if private equity bids a bit more than Sainsbury’s and Boots’s respective current share prices (say 575p for Sainsbury and £10.25 for Alliance Boots), it would be rational for their shareholders to sell. If these are deals driven by the under-pricing of risk, then it’s a fool who doesn’t sell that risk when given the opportunity to do so.

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The Financial Services Authority - the City watchdog - has today made it easier for all of us to invest in hedge funds, but Gerald Ronson wouldn't trust many hedge-fund managers to go shopping for him at Tesco.

Ronson speaks as an investor who has learned from his own mistakes. He has had his fair share of setbacks: severe financial difficulties in the early 1990s; imprisonment for his role in the Guinness affair.

But the legendary property magnate has rebuilt a fortune and his annual City lunch testified to the goodwill he has also nurtured: the 350 or so guests at the Savoy Hotel yesterday included property tycoons, bankers, assorted entrepreneurs, heads of charities, and senior policemen.

The lavish event marked the 50th anniversary of Heron, the Ronson family company, which remains a formidable force after numerous cycles in the property and financial markets. So his views on those markets are worth hearing.

I quote what he said at some length, partly because he made me laugh, partly because it’s a fool who ignores the voice of seasoned experience:

“What a year it’s been in the property sector. We’ve seen extraordinary levels of liquidity wash over the world’s asset markets. There have been remarkable flows of capital and yields have fallen to a level not seen in over two decades.

Investors will have to rely on significant improvements in capital values to generate acceptable returns. There is not much room for further yield compression and much of the anticipated improvement can only come from above average rental growth.

Never before has there been this kind of global liquidity propelling the market. A big part of the story is hedge funds together with property funds. It seems everybody is starting one, although I wouldn’t hire some of these start-up fund managers to do my shopping at Tesco’s. Yet they are still in charge of massive sums of investors’ money.

They only know one direction, the bull market, and in some cases their analysis and management skills are poor. There can only be one ending and we’ll look back and talk about how obvious the signs were.

The current property market however is unlike the one that collapsed in the late 1980s and early 1990s. We have low inflation coupled with relatively little new build and rents are rising not falling. But though the past few years have been profitable for anyone that invested in real estate, the next few years will require more than an ability to write a cheque.”

Just to be clear, Ronson told me he’s not liquidating all his property holdings. But he’s being selective about where he invests. Intriguingly, he believes the prospects remain good for central London office property and “quality” residential.

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Is Bob Diamond worth the ÂŁ22m, or ÂŁ420,000 per week, he earned last year? Are the star players of his beloved Chelsea football club worth around a third of that?

On one level it's a fatuous question. I have a simple, atavistic view: you're worth what you're paid. If you think you're worth more, go out into the market place and test it.

Diamond has turned Barclays' investment banking arm from an also-ran into a contender. No one in his game doubts that his contribution to Barclays’ highly profitable global debt business has been significant. And he's probably being paid more-or-less the market-price for his kind of talent.

But it's arguable that the market itself doesn't work terribly effectively, that it tends to over-value certain sorts of people - investment bankers, hedge-fund managers, chat-show hosts, former residents of the Big Brother house, Premier League footballers - while undervaluing the contribution made by millions of others.

However, some (but not all) investment bankers and footballers can point to the substantial incremental profits they've generated for their businesses, and they can claim with some credibility that their personal remuneration represents value-for-money in that context (actually, it's pretty difficult to make that claim of Chelsea superstars, in view of the huge financial losses incurred by the club).

We live in an era when financial capital is staggeringly cheap and the profit-generating skills of humans are relatively scarce and highly prized. It's why the gap between the wealthiest and the vast majority is widening in a way we haven't experienced for a hundred years.

There may be social and moral arguments against the widening in that gap.

But it’s hard to make an economic case against it, unless you believe that the prevailing global version of capitalism that rules almost everywhere (barring Cuba and Venezuela) is inefficient, unsustainable and will wither.

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Dear Bill Gates

First, the apology. Having complained here on 6 February that your new Vista operating system was driving me bonkers, it would have been polite to give you an update before now.

And had I been a little less self-obsessed, I would have commiserated with you for the wobble in your share price a few weeks ago when your chief executive that Wall Street’s estimates of revenues from Vista in the coming year were over the top (though analysts still expect Vista to generate comfortably over $15bn of sales in the year from June 2007).

But in delaying my progress report, I gave you the benefit of the doubt. I assumed that Vista would soon become compatible with the assorted tools of my trade, so I could write you a belated note of congratulation.

In fact my Vista experience has gone from bad to worse. One of your engineers has informed me that my HP iPAQ PocketPC will never be compatible with Vista, even though the software it runs is Microsoft software. Hey ho. That’s an expensive and serviceable bit of kit written off prematurely.

Your engineer has however held out the tantalising prospect that Olympus may produce new drivers such that I would eventually be able to transfer sound files from my digital voice recorder to my new Vista laptop. But so far, those drivers are proving a bit elusive and my digital recorder may also become redundant.

But as economists say, there’s no point in obsessing over spilt milk. However, here’s what almost sent me over the edge this weekend.

I installed Office XP on my new laptop, and have been puzzled and irked that Outlook will not save sign-on passwords. It means I have to type in my passwords every time I check my e-mail accounts for new mail.

For weeks I’ve been investigating possible fixes to this annoying glitch. But yesterday I came across an explanation from someone called the Microsoft AppCompat Guy, on .

This is what AppCompat Guy says: “This was a difficult deliberate choice. During the development of Vista, it was discovered that the password storage algorithm used by Outlook was too weak to protect your data from future, potential attacks. Both the security and application compatibility teams decided that protecting your data outweighed the inconvenience of having to retype your passwords. As the appcompat representative, I can assure you this was not a decision we took lightly… ”

So just to be clear, Microsoft has created a new operating system that isn’t properly compatible with a best-selling, still perfectly useable version of its own software. Which of course provides quite a powerful incentive for me to spend up to £99.99 on upgrading to Microsoft Outlook 2007 – except that in my current mood, I’d rather stick pins in my eyes.

In a way you’re to be congratulated. Vista should provide a significant boost to Microsoft’s cash flow, from sales of the basic operating system and sales of new versions of other Microsoft software, like Outlook, that are presumably designed to work brilliantly with it. Also there’ll be incremental revenue for the whole computer industry, as customers like me are forced to replace accessories like my HP PDA, which has been Vista’d into obsolescence.

To put it in personal terms, the ÂŁ650 I spent to replace a dead laptop may lead me to spend a further ÂŁ400 or so, just so that I can continue to do with my laptop what I expect to be able to do with it.

All of which sounds like good news for you and the IT industry in general.

Except that I’m left with the uneasy feeling that I’ve been ever-so-elegantly mugged. Presumably there’s no connection between your recent sales downgrade and what you might call the negative goodwill generated for customers like me.

Hasta la vista, as they say

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Prompted by some miffed small companies, I’ve made a few simple calculations on the . And I can see why some young and growing businesses are expressing their views of Gordon Brown in unprintable language.

Here are three examples. If you are a company that makes a profit of ÂŁ250,000 per annum but invests next to nothing in general plant and machinery, then you will be ÂŁ7,500 a year worse off as a result of the increase in the small company tax rate from 19% to 22%.

So far, so painful.

However, if you are the kind of business that invests in new plant and machinery every year, then you’ll benefit from the introduction of a £50,000 annual investment allowance available to all businesses regardless of size and regardless of their legal form. This allowance will mean that 100% of investment in equipment up to a ceiling of £50,000 can be offset against taxable profits.

So if you happen to invest ÂŁ50,000 per annum, you should end up paying about ÂŁ1,000 less in tax, as a result of the combination of the new investment allowance and the increase in the tax rate.

But vast numbers of small businesses invest nothing like that amount every year. So let’s assume you invest £25,000 per annum in such kit – which seems to me to be a more realistic figure – than you would be around £3,000 a year worse off following the Budget changes.

To be unfair to the Treasury for a moment, I am ignoring the increase in the enhanced deduction element of the small company Research and Development tax credit from 150% to 175%, because many businesses complain that they find it impossible to claim.

So what do I think about all of this?

Well I can understand the Treasury’s concern about individuals gaming the tax system and incorporating simply to reduce their personal tax and national insurance liability. So there is some logic to the tax hike, as a deterrent against incorporation by individuals who aren’t really running proper businesses.

But genuine discomfort will be caused to perfectly legitimate businesses – which seems an odd thing to do, given the years of rhetoric from Brown that small companies are the lifeblood of a growing economy.

Finally, I am uncomfortable about the Treasury’s attempt to compensate companies by effectively bribing them to invest through enhanced tax breaks on investment. If it does lead to incremental investment, much of that new kit will be unnecessary, white-elephant stuff, the equivalent of gold taps.

Ideally, investment should only be made following a hard-nosed assessment of whether the discounted cash-flow returns likely to be generated by the investment exceed the cost of capital. And a sensibly designed tax system shouldn’t distort that assessment.

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I felt almost nostalgic this morning when reviewing : it was very much in the tradition of Brown’s early Budgets and manifests the great paradoxes in his version of New Labour.

Here’s why:

1) Like those early Budgets, it imposed relatively tight constraints on public spending growth;
2) It was very good for the City, the creative industries and the service sector;
3) At best, it did nothing for Britain’s hard-pressed manufacturing sector and at worst it was harmful;
4) It was a reforming Budget in that it has undoubtedly simplified the personal tax and corporate tax systems (although much of what he proposes is simply a reversal of the tax-complexity of his own making);
5) It was rational, in aligning capital allowances with economic rates of depreciation;
6) It was tough on those individuals whom he perceives to be “gaming” the tax system, disguising themselves as small businesses (though in the process, he has probably hurt some proper small businesses);
7) It heaped its rewards on working families with children in the middle to low income brackets, took next-to-nothing from those on highest incomes, and contributed little to the childless at the bottom of the income scale;
8) He fudged the presentation of the Budget, in that he wanted it to be seen as both a serious reforming budget and a bribe to Daily Mail readers.

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There were howlers in my hastily drafted initial budget blog. Here is my more considered view with - I hope - fewer solecisms.

The big point is that the corporate tax reforms, including the changes to depreciation allowances, are good for most big profitable companies - especially those which might consider relocating to lower tax countries.

The reason is simple: they'll be paying two percentage points less of corporation tax.

But the changes to the allowances and also the increase in the small-company tax rate means there will also be losers.

A small company that invests a fair chunk of its profits will probably be better off. But those that don't invest will definitely be poorer.

Among bigger companies, any business with lots of hotels or industrial buildings or runways will lose, as a result of the abolition of the industrial buildings allowance

There's also a redefinition of what counts as fixed long-life assets and what counts as plant and machinery, to crack down on companies that obtain generous equipment allowances on fixtures and fittings in buildings.

Broadly, if a bit of kit is nailed down, it can no longer be classified as plant and machinery. So henceforth it will only obtain long-life asset relief of 10 per cent (which is being raised from 6 per cent) as opposed to the previous 25 per cent relief on equipment.

This is where it all becomes a bit complicated and involved. That 25 per cent per annum relief on investment in plant and machinery is being cut to 20 per cent. So any company that invests in lots of equipment will be hurt.

And, as I said, any company that has lots of buildings will be hit.

All of that doesn't sound like good news for BAA, or some transport businesses, or energy companies and utilities, or Network Rail or the Royal Mail (and in Royal Mail's case, that's a potential headache for Government, as its owner).

And my hunch is that BT will also be quite significantly hit.

But what the losers have in common is that it's rather harder for many of them to base themselves abroad for tax purposes.

The winners are those businesses with fewer industrial buildings or which have significant net cash flows, such as creative companies, banks, assorted financial service providers, other service companies, retailers, pharma and high tech.

For many of them, if the subscription price of being a member of the club of British companies - in terms of tax payable - were to become too steep, it would be relatively easy for them to emigrate.

Today Gordon Brown has cut that membership fee and hopes the likes of WPP, Vodafone, HSBC and Barclays can be persuaded to pay their reduced British tax with pride and enthusiasm (or at least not to do a runner to Dublin, or Amsterdam).

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George Osborne will be feeling pretty pleased with himself, because the Chancellor’s plans to cut the headline rate of corporation tax and simplify the company taxation system bear a striking resemblance to proposals he announced on Monday.

Brown is cutting the headline rate of corporation tax by two percentage points to 28 per cent from April 2008. And he’ll recoup the cost of that by recalibrating a series of depreciation allowances (or changing the rates at which companies can offset the costs of the deterioration of assets against their tax charges).

For small companies, there’s a similar mix of positives and negatives. The headline rate of small company tax is going up from 20 per cent to 22 per cent. The reason is that the Treasury wants to stem the tide of individuals classifying themselves as companies to take advantage of the low small-company tax rate.

However, the Treasury is endeavouring to ensure that genuine small companies aren’t disadvantaged, by massively increasing the depreciation allowance on investment up to £50,000 per annum (which will apply to all companies, big or small). On up to £50,000 of investment, there’ll be an annual tax allowance of 100 per cent – which certainly looks very generous.

There will also be some big-company losers: the depreciation allowance for industrial buildings will be abolished; and there’ll be a crackdown on the way some companies classify fixtures and fittings in buildings as “equipment” in order to benefit from generous depreciation allowances.

However, the depreciation rate for so-called long life assets is going up from 6 per cent to 10 per cent. But the depreciation rate on short life assets is being cut rom 25 per cent to 20 per cent.

There’ll also be yet more tax incentives for research and development, with the tax credit for R&D going up from 150 per cent to 175 per cent.

All in all, I would expect big companies to welcome these measures. They will see it as a welcome attempt to restore the tax competitiveness of the UK, in the face of a worldwide downward trend for corporate taxes.

For small businesses, the reaction will be more mixed. Some won’t like the increase in their tax rate, but many small businesses may end up paying less tax thanks to the introduction of the more generous investment allowance.

The net cost of this corporate tax package looks broadly neutral to me – but I can’t yet be certain of that.

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Part of the background to today's Budget is a growing concern that businesses in Britain are paying too much tax and that the tax system here is a bit too complicated.

For example - and as I wrote here last night - it has emerged that the head office of the giant bank being created by the merger under negotiation between Barclays and ABN would be in the Netherlands.

That means that the new superbank would probably be registered for tax purposes in the Netherlands, which over time would lead to quite a significant loss in tax to the Exchequer.

Now Barclays is being careful to say that the decision hasn't been taken. And it is very keen not to lay into the chancellor at this delicate juncture.

But accountants tell me that it would be mad not to base itself in the Netherlands, because the tax advantages would be huge.

So part of what the chancellor will attempt to do today is restore the competitiveness of the UK in a tax sense.

According to the CBI, in 1997 the UK had the third lowest rate of corporation tax among the 15 countries which were then members of the European Union.

At the time, Gordon Brown took very public pride in cutting the corporation-tax rate.

However the headline corporation tax rate has been unchanged at 30% since 2000, while other countries have been cutting their tax rates.

Today, the UK's corporation tax rate is the seventh highest among the current 27 members of the EU.

It's important not to overstate the gravity of our fall down this league table.

The tax rates of some of our very biggest competitors remain higher than ours, as does the actual burden of taxation (which includes the impact of all taxes on companies, not just corporation tax).

The Treasury for example is keen to point out that the UK still has the lowest rate among the G7 leading global economies. And for example the tax burden on companies in Germany and France remains significantly higher than it is in the UK.

But the trend, of the UK becoming less competitive when it comes to company taxes, is clear and unambiguous.

Among the chancellor's great obsessions of the moment is that the British economy mustn't become less competitive at a time of intense worldwide competition for the best jobs between countries.

I therefore expect him to announce measures in the Budget to lift Britain's position in the league table of tax competitiveness.

That could mean that the rate of corporation tax would be cut over time - and almost certainly that steps will be taken to reduce the complexity of the tax system.

If he does do that - and as I say, the odds of something happening in that direction are high - the shadow chancellor, George Osborne, would be able to do the "I-told-you-so" dance.

On Monday, he urged the chancellor to cut three pence off the headline rate of corporation tax, funded mainly by a streamlining between the allowances the tax man gives companies for wear and tear or depreciation of physical assets and the rate at which companies in practice write off those assets.

Osborne's suggestion highlights perhaps the most important constraint on Brown's tax reforming ambitions. The chancellor simply doesn't have the money available to cut taxes unless he can boost revenues to the Exchequer in other ways or cut outgoings.

So whatever he does would probably be a long term process. And it would be funded by constraining the growth of public spending or finding compensating revenues.

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So what kind of an animal would the combined Barclays and ABN turn out to be? A slightly strange hybrid, based on the information Barclays put out this afternoon.

It would be incorporated in the UK with a primary listing on the London Stock Exchange. But its head office would be in Amsterdam.

Meanwhile its operational centre would be in London. However it wants its primary regulator to be the Dutch Central Bank (though that may not be achievable, if the US regulator were to insist – as it might – that London’s Financial Services Authority should be the lead regulator).

As for management, the first chief executive would be Barclays’ John Varley, while ABN AMRO would supply the first chairman.

For shareholders, the most important – and welcome – decision taken by the two banks so far is that the new entity would have a single board, along British lines, and unambiguous management and governance structures. It looks as though the danger has been averted that Barclays/ABN would be a messy, multi-layered, multi-listed monster with no one properly in charge.

But for the Chancellor on the eve of his last budget, there is one rather worrying uncertainty created by the deal: it’s by no means clear whether it’ll pay tax primarily in the UK or in the Netherlands.

There would be clear advantages to being registered as Dutch for tax purposes. Why? Because there are more favourable arrangements in the Netherlands for offsetting tax paid on overseas earnings against the local liability than we have here in the UK.

That’s why, for example, Shell decided to have its tax domicile in the Netherlands when it opted for a unitary structure.

So for all Barclays saying that the tax-domicile decision hasn’t been taken, my tax-specialist chums tell me it’s a racing certainty the Netherlands will be the winner.

What does that mean? Well it probably wouldn’t lead to a loss to the British Exchequer immediately. Tax payable on UK earnings and incrementally on profits from its current overseas operations would still flow to the UK.

But it means that the UK wouldn’t benefit as and when the enlarged group established new operations in fast growing parts of the world like India and China. Profits repatriated from such new territories would go to the Netherlands, and would be taxable in the Netherlands, not the UK.

Over the long term therefore there would be a serious cost to the UK. Should we blame Barclays for being ambitious and wanting to create a world-leading global bank – and being prepared to compromise to achieve that ambition?

Or should we blame the Chancellor for putting in place tax arrangements for multinationals that are uncompetitive with those of the Netherlands?

As it happens, it’s a funny old time for this unseemly tax question to be raised – because my understanding is that much of tomorrow’s budget will be aimed at restoring the competitive of the UK’s corporate tax regime. Barclays will be crossing fingers and toes.

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In cartoon fashion, steam will have been coming out of the chancellor's ears last night when he learned of Lord Turnbull's interview in the .

His , which will be his last as chancellor, was supposed to be a biggy.

It was supposed to show that he - not the Tories - understood the competitive threat faced by the UK and is addressing it. And it was supposed to further set out his stall as the probable next prime minister.

However political discourse over the coming days is likely to set by the savage criticisms made of him by the former cabinet secretary and erstwhile permanent secretary at the Treasury.

I can think of no precedent for such an attack being made on a serving, senior cabinet minister - and premier-in-waiting - by someone who till recently was the most powerful civil servant in the country, although there are echoes of the way some of the mandarinate rounded on Margaret Thatcher in 1979.

The problem for Gordon Brown is that Andrew Turnbull, who served with the chancellor at the Treasury for four years, is neither prone to intemperate outbursts nor has he had a conspicuous falling out with the chancellor.

In fact the reverse is true: Gordon Brown had a difficult relationship with his first Treasury Permanent Secretary, Terry Burns, stemming from a lack of mutual trust; but stability was restored after Turnbull succeeded Burns.

Turnbull has more recently, since leaving government, raised the odd concern about Treasury policies. For example, in a speech last year in the House of Lords he was waspish about Treasury hostility to Adair Turner's pension-reform proposals. But his reservations have been expressed in a rather delphic way.

There is nothing delphic in his latest critique, that the chancellor's style of working is insulting to his cabinet colleagues, that it undermines government cohesion and that it tends to militate against proper assessment of strategy.

There are however two ways of looking at Turnbull's indictment of Brown as embodying Stalinist ruthlessness.

One - which will be the interpretation seized on by the Tories and by Brown's many enemies within the Labour Party - is to see it as evidence that he is unsuited to be prime minister.

They will argue that the UK is crying out for a return to proper Cabinet government, with responsibilities for policymaking and policy execution properly shared between a team of ministers and then delegated further down the line.

And they'll say that little about Brown's history shows that he is capable of that.

By contrast, the view of Brown and his close colleagues would be that Turnbull is manifesting - in a rather delayed way - the pain of the traditional civil service against the chancellor's determination on taking office to drive through change in the face of what he perceived as an inflexible bureaucracy.

The chancellor also believed he had a mandate from Tony Blair to control the government's domestic agenda, stemming from their pact in 1994 when Brown made way for Blair in Labour's leadership contest.

To put it another way, most of what Turnbull says about the way that the Treasury has dominated policymaking since 1997 - and the way that Gordon Brown has acquired enormous power at the expense of his cabinet colleages - is true. Apart from anything else, the Treasury has been deeply resistant to sharing its plans even with 10 Downing Street and the prime minister.

However, there are some - including many civil servants - who will argue that's been a good thing, in that it has allowed Brown to push through significant reform to the stewardship of the economy, to welfare and to competition policy with an efficiency that might not otherwise have been possible.

That said, there appears to be a consensus now - within Labour and the civil service - that a command and control style of government is no longer appropriate. Even Brown himself talks about the imperative of delegating power and governing on the basis of bringing the widest range of talents into his tent.

Turnbull has made it more urgent for Gordon Brown to prove that he can govern as prime minister in a different way from his modus operandi as chancellor, irrespective of whether that modus operandi was right for the times.

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Chris Hohn may have done it again. In 2005 the campaign of his TCI hedge fund against to buy the London Stock Exchange precipitated nothing short of revolution in the ownership of Europe's stock markets - whose consequences are still being played out.

Now TCI has acquired a 1 per cent stake in the pride of Dutch banking and is trying to force it to dispose of overseas interests and consider selling itself whole to another bank.

Enter Barclays. As the , Barclays has been in touch with ABN to offer itself as a potential white knight against the gathering hordes of hedge funds.

I don't expect ABN to give itself over to the tender care of Barclays soon. Dutch banks never act precipitately. Apart from anything else, there'll be plenty of other European banks keen to "rescue" ABN, which may include our own Royal Bank of Scotland and Lloyds TSB (both of which would in some ways be a better strategic fit with ABN in view of their mix of businesses) and Scandinavia's Nordea.

In fact the outing of Barclays may turn out to be something of a mixed blessing for the UK's number three bank. The possibility that Barclays is about to supersize itself could prompt Bank of America to at last make its long-mulled attempt to swallow the Blue Eagle (Barclays and Bank of America held merger talks before B of A went on its last US shopping spree).

So TCI may have started dominos tumbling that could ultimately lead to those long-rumoured, seismically important but elusive banking events: a really substantial cross-border merger of two huge European banks and - whisper it - a mega Transatlantic banking deal.

Update 19:00 GMT: Barclays will confirm tomorrow morning that it has held exploratory talks with ABN. It feels obliged to make a statement, under UK listing rules. By contrast, ABN's preference would be to say nothing - though its silence, if maintained, will look very odd.

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Press and City – myself included – have been obsessing with when the stalking will tell the supermarket’s board the price it is prepared to pay to buy the business, so that proper negotiations may begin.

But we may have been looking in the wrong place for the talks that will determine the future of this celebrated retailing name. The dialogue that matters – which I think is going on right now – is between the four deep-pocketed giants of private equity and the trustees of Sainsbury’s pension fund.

In something of a re-run of the big event in Philip Green’s abortive attempt to buy Marks and Spencer, the bidding quadruped needs to know how much cash it will be obliged to put into Sainsbury’s pension fund. Only when that liability is clear can it decide how much it can afford to pay for the retailer.

The deficit in Sainsbury’s pension fund of £276m as of October 7 2006 may not look much by comparison with the billions at the disposals of such well-heeled private equity funds as , and TPG. And it doesn’t look huge in comparison with Sainsbury’s stock market value of £9.4bn.

But the pension-fund liability could in fact determine whether the quartet can offer Sainsbury’s board and its shareholders enough to carry off the prey.

Here’s why.

First, Sainsbury – as currently constituted – has agreed to pay off the fund deficit over eight years.

Second, Sainsbury – as owned by private equity – would have billions of pounds of property assets stripped out of it and billions of pounds of debt loaded on to it. So it would become a riskier business with less deep pockets.

Third, the pension fund trustees would want the net fund liability paid off quicker than over eight years if Sainsbury became a more fragile business under new ownership.

Fourth, the trustees may also feel that the increase in the riskiness of the parent company requires a decrease in risk at the fund itself. So it may decide it would have to cut its current holdings of equities from the current 62% of assets and increase its holdings of bonds. Such a switch from equities to bonds would probably have the paradoxical effect of increasing net scheme liabilities to a figure in excess of ÂŁ276m.

So the fund trustees may insist on a one-off, immediate cash injection from the putative bidders of several hundred million pounds. And that could make all the difference between whether the private-equity four can offer 540p per share, which is a price the Sainsbury board would probably turn down, and 570p per share, a price the Sainsbury directors would feel under pressure to take.

Or to put it another way, the fate of J Sainsbury may be settled by its shy, anonymous pension-fund trustees.

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I have learned that is planning to break itself into two companies, one concentrating on chocolate and confectionery, the other consisting of its US beverages operations.

Cadbury’s board has been meeting today to finalise the decision. An announcement from the company could come as soon as tomorrow morning

If all goes to plan, Cadbury shareholders will find themselves owning two shares for every one they currently hold, one in the core confectionery business, the other in the US soft drinks operation.

However financial preparations for the break-up will take some time and the demerger may not be completed till the autumn.

According to analysts, the beverage business could be worth up to £7bn as a separate entity, while the chocolate and chewing gum operations could be worth an estimated £9bn – which compares with a market value for the combined group right now of £12.6bn.

The decision to demerge its US drinks business – which owns famous brands such as Dr Pepper and Canada Dry – may look like a victory for Nelson Peltz, the noted US activist investor, who has almost 3 per cent of Cadbury.

Mr Peltz has made it clear to Cadbury that he wants the business split in two.

However Cadbury has been considering splitting itself for some months, according to sources close to the group. “This is something that’s been worked on before Mr Peltz came on to the scene,” said a source.

In recent months, the company has suffered a few problems in its confectionery side: the withdrawal from sale of thousands of chocolate bars last year, after the Food Standards Agency discovered that there had been a ; the a few weeks ago, because they weren’t labelled as being unsuitable for those with nut allergies; the discovery that the “financial position” in Nigeria had been “overstated” for a number of years.

These difficulties have raised questions about whether the combination of drinks and beverages in a single entity had made the business harder to manage effectively.

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One of the less visible consequences of Government policy on climate change is that it would lead to a massive transfer of wealth from the developed world to the developing world.

I was nudged in this direction during a chat with the Environment Secretary, - and he made the point explicitly for the international edition of Newsweek.

The transfer results from the mechanism laid down in the draft Climate Change Bill for achieving a 60 per cent reduction in carbon dioxide emissions by 2050.

It allows the purchase from abroad of “carbon credits” to hit the five-yearly targets for CO2 cuts along the way. What this means is that if the UK invests in projects in China, or India or Africa - for example - which would reduce their emissions, than those reductions in CO2 can be counted in an assessment of whether the UK has met its targets.

As an example, if carbon sequestration became a viable technology, then a British power generator could capture and bury the CO2 produced by a Chinese coal-fired plant and then count that CO2 against is own CO2 “budget” for carbon cuts.

There are issues about auditing whether CO2 is actually being reduced all those thousands of miles away. But the logic of allowing these credits is impeccable: CO2 is fungible; if you believe in climate change, then CO2 is harming all of us, whether it’s spewed in China or here.

In practice, it creates a massive incentive for gas-spewing UK businesses to invest in the developing world, and therefore achieve their individual budgets for carbon cuts by importing reductions.

How much capital could flow to the developing world in this way? Miliband cites United Nations research, that if all industrialised countries took on emissions-reduction commitments of 60 to 80 per cent, and if they purchased half of their reductions in the developing world in the way I’ve described, then the financial flows would be $100bn per annum (assuming a carbon price of at least $10 per ton – which may be massively too low).

The UK would contribute perhaps $5bn a year of this capital transfer, based on its share of developed countries’ emissions.

To be clear, these numbers are a bit flaky. But they contain an important truth - that the flows from developed world to developing world would be huge.

However, this would not be dead money, handed over with no prospect of any financial return. If UK businesses were for example financing low-carbon power generation in China, those businesses would expect a share of the profits and dividends generated by the power generation.

We’re talking about compelled philanthropy that would in fact yield future financial gains, quite apart from its impact on the environment.

That said, it is redistribution on a grand scale and there will be costs for British businesses and for you and me - since those businesses are likely to pass the expense of reducing carbon on to consumers.

So don’t be fooled into thinking that Tory proposals to tax aviation to reduce their emissions is for example somehow worse for you than Government plans to set targets for airlines’ emissions and to include them in the European Emissions Trading Scheme (which has generated a price for carbon credits by allowing European gas-spewers to buy and sell the right to produce carbon). Both approaches would push up the cost of flying - which is presumably what matters to you.

But both main parties can perhaps be accused of not being quite explicit enough in explaining the impact of the Climate Change Bill. There’s the increased price we’ll pay to heat our homes, drive our cars and so on. And there will be a torrent of cash flowing from the wealthier economies to the poorer (but faster growing) ones.

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has 3,000 outlets, including 2,600 in the UK. It employs more than 100,000 people. As a drugs and medical consumables wholesaler, it has an impressive 40 per cent market share, supplying more than 125,000 pharmacies, health centres and hospitals. And its pharmacists frequently dispense valuable healthcare advice along with the drugs.

All of which is to say that this company touches most of our lives from cradle to grave and what happens to it isn’t just of interest to its shareholders. And if it were damaged by a private-equity takeover (by, for example, being over-burdened with debt payments), many of us would care and some of us would be inconvenienced or indeed harmed.

Which is also why Boots will be a great test case for whether private equity firms mean what they say when committing themselves to being more open and transparent about what they do.

As I wrote on Friday, I’d expect the great pioneer of the global private equity industry, (KKR), to end up as owner of Boots, in partnership with the billionaire deputy chairman of the retailer, Stefano Pessina.

The £10bn-ish they’ve said they’ll probably offer is well above where the shares were trading only a few days ago and will be impossible for Boots’s board to dismiss out of hand. And endowed with the 15 per cent of the shares controlled by Pessina, they’ve got an important head start as and when they formally slap down a bid on the table.

However I certainly don’t expect the Boots board – which meets today – to roll over immediately. That’s not the style of the chairman, Sir Nigel Rudd. But if he can squeeze a bit more out Pessina and KKR, then the chances are that Boots will be theirs.

Now Pessina’s formidable track record is as a builder of businesses. And my understanding is that he was motivated to team up with KKR by what he perceived as the short-termism of the City, his perception that investment analysts were chronically undervaluing the prospects for Alliance Boots and unduly obsessing with superficial measures of its progress (such as so-called like-for-like sales figures).

All of which would imply that this takeover would be one where private equity intends to buy to invest and build and grow, as opposed to the bogeyman caricature of private equity firms as asset strippers and grim reapers who chuckle as they decimate staff in underperforming businesses.

But that’s my assumption, based on one brief meeting with the elusive Mr Pessina many months ago and my assessment of his history. If KKR wants this bid to be the rehabilitation of the UK’s relationship with private equity, it should be explicit about what it means for customers (not just you and me, but hospitals and independent pharmacies too) and for those 100,000 employees.

Whether KKR ends up as the owner of Alliance Boots will be determined by shareholders and bankers. But if KKR wants to build a formidable, sustainable business in the UK, it will have to reach out to a wider constituency than investors and providers of finance.

As for Boots’s current shareholders, they should be embarrassed by this takeover attempt. Why? Because Pessina plainly believes they’ve failed to provide the support necessary for Boots to flourish – which would be damaging for the millions of us who own Boots shares through our pension funds.

Update 15:30 GMT: The Boots board, as predicted, has decided £10 per share isn’t enough – and therefore the independent non-executive directors can’t recommend an offer from KKR and Pessina at that level.

The ball is therefore firmly back in the court of KKR and Pessina. They would look pretty foolish if they simply walked away. So I would therefore expect that when they search down the back of their sofa, they will find that they actually have a few hundred million pounds more they could spend on buying Alliance Boots.

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I’ve had it confirmed that the institution mulling a Boots bid is KKR, which is the world’s biggest private equity firm and the de facto founder of the private equity industry. It has also been in the private equity consortium mulling a bid for Sainsbury. It’s not yet clear whether its interest in Boots will have implications for the Sainsbury deal.

One thing’s clear: the Treasury’s review of “shareholder debt” hasn’t put off the private equity boys.

Update 18:45 GMT: The disclosure that Stefano Pessina is collaborating with KKR on the bid massively increases the likelihood that this deal will go through. He is the creator of Alliance UniChem, which merged last year with Boots. But the crucial point is that the Monaco-based Italian billionaire controls at least 15 per cent of Boots’s shares.

What’s more, more than half of all Boots’s shares are in the hands of relatively few investment institutions. So KKR/Pessina won’t have to persuade too many holders to nab their prize.

One bunch of brainy people who presumably are feeling a little silly tonight are investment banks’ sell-side analysts, since almost all of them rated Boots’s shares as a “sell”. Their bearishness seems to have given Pessina his opportunity to offer just under £10bn for a business with formidable cash-generating capacity and a great opportunity to expand around the world.

Looks as though another great British business will soon be in overseas hands.

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Ed Balls’s and whether British companies in general invest with a long-enough time horizon was welcome, largely because this is a serious issue of profound importance to our future prosperity – but one that ministers rarely touch even with a mile-long barge pole.

It’s just a bit too huge, serious and daunting for most politicians. And to Balls’s credit, there wasn’t as much of the speaking-clock-style “these are our great achievements” stuff that normally fills such ministerial addresses.

The more significant points he made were that he, as minister for the City, recognises the contribution that private equity can make to UK productivity growth, that there are good and bad private equity firms (wealth-creating long term investors and short-termist, asset-stripping cowboys), and that a mindless crackdown on the industry would deprive the UK of an important source of capital and management expertise.

But there are some big questions that he left unanswered, possibly because to do so might turn him into an hors d’oeuvre either for the City’s sharks or for the predators of the trade unions and the Labour left. So here are those questions, for him to ponder:

1) Does he really think, as he implies, that the three-year investment time horizon of many private equity firms is long enough for an economy wrestling against India and China, where they plan 10 and 20 years ahead?

2) He takes comfort from the fact that private equity-owned businesses are still a smallish proportion of the British economy. But that’s to look at the stock rather than the flow of deals. For years now, money pouring into private equity for purchase of British businesses has far outstripped new money going into UK listed businesses. According to the Financial Services Authority, the UK equity market capitalisation shrank by a net £46.9bn in the first half of 2006 and has not grown since the last quarter of 2004. Does he think this rapid transfer from public to private is healthy and sustainable?

3) There will be no general review by the Treasury of the principle that interest should be deductible from corporate tax. But the debt in private equity deals is on a sharply rising trend, as measured by the ratio of borrowing heaped on private equity-owned businesses to their earnings before interest, tax, depreciation and amortisation (an accounting proxy for cash flow). When you couple that with the increasing volume of private equity deals, it means that there is sharp downward pressure on corporation tax revenues for the Exchequer – because more debt means more interest payable which means lower taxable profits which means less tax. Isn’t that erosion of the British tax base a serious worry?

4) The Chancellor introduced a 10% rate of capital gains tax largely to encourage the creation of new fast-growing businesses in the UK and provide an incentive to entrepreneurs. Does he think that the spirit of that CGT reform is being met in the way that the partners in private equity firms typically benefit from this 10% rate on their “carry” (if they pay tax in the UK at all, they will typically pay 10% on their very substantial share – usually 20% – in the capital gains on any private-equity realisation)? Are the many tens of millions of pounds that private equity partners pocket from these deals really rewards for the kind of risk-taking that the Treasury wanted to encourage with the 10% rate?

5) These days everybody loves transparency. And certainly a sensitively drafted code of disclosure for private equity-owned businesses – of the sort that’s being encouraged by the Treasury and Balls – might see some of the rapacious cowboys driven away. But isn’t there a risk that new disclosure rules will be at best cosmetic and at worst damaging? The point is that private equity houses that engage in bigger deals, such as Permira, already publish a great deal of financial information about the companies they own. They are motivated to do so, in order to create excitement and interest from potential investors or trade buyers for the moment when these businesses are sold. On the other hand, the smaller and younger businesses owned by private equity might find new disclosure requirements both prohibitively expensive and potentially damaging (if the veil were drawn back before they are robust enough to withstand competitive onslaught). So let’s not fool ourselves that transparency is always a public good.

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It was a “trust-me-I’m-Bono” moment.

Just over a year ago, I was sitting on a sofa in a chichi Swiss hotel next to the evangelising rock star as he explained how shopping could change the world. “Please don’t be cynical” was his message to me and a handful of other hacks.

His big idea was a brand that would be attached to all sorts of consumer goods and services. The brand, “Red”, would tell the customer that a proportion of what they spent on those goods and services would go to his charity of choice, the huge Global Fund which fights Aids, Malaria and tuberculosis in Africa and the developing world.

So, for example, if you buy a “Red” Motorola mobile phone in the UK, a £10 contribution is made to the Global Fund and 5% of your monthly phone charges also goes to the charity.

Other big companies that have launched Red products are American Express, Gap and Apple.

So how’s Red doing? Well not terribly well, .

It estimates that these big companies have spent up to $100m advertising and marketing the Red products, but that only $18m has been raised for charity so far.

Now it may be early days. It’s premature to argue that it would have been better if that $100m had been paid directly to the charity (although that wasn’t an option).

What’s more, the Red team appears confident that significantly more will be raised – and $18m isn’t to be sniffed at.

However, on the basis of these early results, the rate of return on the marketing expenditure for the Global Fund is disappointing.

Am I surprised? Not really.

Rather than simplifying the basic activities of donating and shopping, it complicates them, because the decision about which charities to support and the choice of which goods and services to buy are different kinds of decision. Rolling them together is confusing.

But perhaps the more fundamental flaw in Red is that it appeals to our less attractive instincts, not our better ones – which is a turn off.

It’s predicated on the notion that most of us would like to give to charity, but only if we get something in return (a stylish mobile phone or an iPod) and only if we can flaunt a logo showing just how good we are. Also, it rather implies that we are too lazy to think about which charities we should support.

Most of us, surely, are better than that.

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Michael Grade says that he’s found ITV in than he expected. But if that’s right, goodness knows what unspeakable horrors he actually anticipated.

On an underlying basis, pre tax profit in 2006 was ÂŁ253m, down from ÂŁ321m in the previous year.

Looking forward, ITV’s own television advertising revenues will actually be lower in the first three months of this year, because of a decline in its share of commercial impacts (a measure of how many people are watching) and the ghastly impact of Contract Rights Renewal (this is the framework for fixing what it pays for advertising that was put in place when ITV was created through the merger of Carlton and Granada).

However on a more positive note, the television advertising market may have stabilised: ITV expects a 0.5 per cent rise in total UK advertising (that for all broadcasters, not just ITV) in the first quarter of this year. But conditions are fragile, to put it mildly.

In no particular order of importance, these are the fairly fundamental challenges that confront Grade.

1) Extricate ITV from the middle of the life-or-death struggle between Virgin Media and BSkyB.

The ITV board has belatedly concluded that it’s not terribly comfortable with Sky owning 17.9 per cent of it. Not because Sky can micro-manage ITV on a day to day basis. But because it would have the power, through the votes attaching to its shares, to block any really big deal that ITV might want to do.

So if ITV actually wanted one day to merge with Virgin Media, which is far from impossible, well Sky could stymie that (based on the voting behaviour of ITV’s investors, ITV would find it difficult to secure the 75 per cent majority required if Sky were opposed to the deal).

ITV has raised its concerns with Ofcom and the Office of Fair Trading, which are investigating Sky’s ownership of the ITV stake. Sky won’t be delighted but probably not altogether surprised.

2) Restore viewer confidence in the pay-phone lines used in game shows and talent contests. This is one of the few revenue-streams at ITV that’s been growing, so it would be a disaster if recent negative publicity led some customers to stop voting for Tracy Starlette or her ilk.

3) Encourage ITV’s commissioners to take programming risks – even though the cost of a flop in terms of lost advertising revenue has escalated ever since the company implemented Contract Rights Renewal.

4) Cut bureaucracy.

5) Enlist advertisers and other television companies to support ITV in its campaign to persuade Ofcom and the OFT to replace Contract Rights Renewal with arrangements that lessen the sensitivity of ITV’s revenues to falls in viewer numbers.

6) Build up the newer digital channels and online businesses fast enough to compensate for the inevitable decline of ITV1 in a fragmenting media world.

7) Make a bob or three and keep smiling.

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Not long now till we learn whether that for .

They’ve been mulling long enough for J Sainsbury’s board to think about forcing their hand. It can do that by going to the Takeover Panel to request that the putative bidders “put up or shut up”, to use the City cliché.

But the quartet will probably pre-empt that mild humiliation.

The stakes have been raised by the recent noisy debate about whether private equity is a good or bad thing.

The GMB’s attack on private equity has increased the reputational risks for CVC, TPG, Blackstone and KKR, the private-equity four, of engaging in a long and protracted public process (and the key word is “public”) of trying to buy such a well-known retailing name with so many employees. That probably reduces the price they would be prepared to pay.

However the tilt at Sainsbury has taken on a significance even beyond the bald fact that it would be the UK’s biggest private-equity takeover.

It would be highly damaging for private equity’s long-term ability to invest its billions in the UK, if the quartet didn’t bid at all and allowed their trade-union critics to claim victory. The boards of public companies would question whether they really had the bottle for deals when the going gets tough and would be less minded to negotiate with them.

So here’s my prediction: the four will make a conditional bid, pitched at a level just below what the board of J Sainsbury would feel obliged to accept.

It will be an almost-serious bid, or one that protects private equity from the charge that it is running away with its tails between its legs.

In terms of price, that would put a conditional offer at nearer ÂŁ5 per share than ÂŁ6: not derisory, but not quite high enough to allow the quartet to feast on Sainsbury.

The honour (if that’s the right word) of private equity will however have been preserved. And another mega private-equity bid of another famous British business will come along before too long.

As an addendum, Permira looks to me to be the clever-clogs in this soap opera, having contemplated but resisted the urge to turn the Sainsbury private-equity quartet into a quintet.

Update 15:30 GMT: The has today ordered the private equity quartet to bid by April 13. Which is long enough for an almost-serious offer to be made and then politely rejected.

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When I started this blog in January, I listed seven issues that I thought were likely to feature fairly regularly and asked what you thought of them. In shorthand, they were:

a) whether the power of the big supermarket groups needed to be reined in;
b) whether there was sufficient competition between high street banks;
c) whether the climate for small business was dangerously inclement;
d) what role employers should have in providing pensions;
e) whether the increasing gap between the super-wealthy and the rest matters;
f) whether the rise of private equity is a cause for concern; and
g) whether we should be worried that so many British businesses are being bought by overseas interests.

What now intrigues me is whether you would agree with the views of opinion formers on which of these questions are the most important and which the least. A ranking has been provided to me by the polling organisation, .

Every month, it seeks the views of decision-makers and opinion formers from politics, government, the City, business, media, the voluntary sector, think tanks and academia. In its latest survey, it asked about those seven issues and a further one, viz “What role business should have in attempts to reduce CO2 emissions and tackle climate change?”

Here’s the pecking order, from most important to least, with the mean score in the right column.

• climate change 7.63
• pensions 7.44
• retail 7.26
• small business 6.63
• banks 6.24
• private equity 6.15
• wealth gap 6.00
• foreign owner 5.10

As you can see, climate change wins by a clear margin, which we’ve seen manifested in all those corporate announcements of green initiatives.

However I am struck that overseas ownership of British businesses resonates so little. That said, breaking down the scores by occupation of those surveyed, executives in the City (where overseas ownership is disproportionately high) view cross-border takeovers as of far greater concern than anyone else does, which is intriguing.

Other conspicuous splits between the different members of the Opinion Leader panel are that business leaders think that conditions for small businesses are hugely important, while media representatives can barely stifle a yawn.

Also the only group seriously exercised by the widening wealth gap are those in think tanks and the voluntary sector. Politicians are relatively unbothered by it, in spite of the recent attempt by Peter Hain, a candidate to be Labour’s deputy leader, to increase its salience (see my recent blog, “Hooray for the super-rich?”).

Other fascinating results are that those in politics and government are least interested in pensions and are laggards in appreciating the growing power of private equity. As for the media, it rates the role of Tesco and the big banks higher than anyone else does – and I’m uncertain whether this reflects the concerns of the wider population or is an unhealthy media obsession.

Presumably you’ll let me know.

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David Rubinstein, managing director of Carlyle – the private-equity pioneer made famous by Michael Moore (though not in a way it likes) – said this to the assembled buyout superstars at Frankfurt’s “Super Return” conference this week:

“Now rock stars want to be private equity people. When rock stars are getting into our business, you know we’re at the top of the market.”

I’m not aware that anyone has rushed to defend Bono’s investing credentials. But actually you can apply Rubinstein’s remarks more broadly.

For years now, there’s been a torrent of cash pouring into hedge funds, private equity or any financial instrument apparently promising better returns than high-grade corporate or government debt. And the torrent has been turning to deluge.

So the volatility we’ve witnessed in global equity markets this week is simply the most conspicuous manifestation of widespread fears that we may be near the peak of this particular cycle.

In an era of relatively low inflation and low interest rates, the great markets trend of the past decade has been the so-called “search for yield”. That’s why private equity and hedge funds have boomed: they claim to offer super-normal returns.

It’s also precipitated a massive cross-border financial practice called the “carry trade”. This is the business of borrowing where interest rates are incredibly low – such as Japan, where the benchmark interest rate is half a per cent, less than a tenth of the British base rate – and investing the cash in instruments promising decent yields (in theory) such as emerging market bonds or corporate junk bonds.

The scale of the carry trade has been such that the price of genuinely toxic bonds – and potentially poisonous financial instruments issued by private equity to fund their purchases – have been driven up to levels where they don’t yield much more than really safe investments, such as US or UK government bonds.

Or to put it another way, substantial risk has been under-priced: investors have been behaving as though we live in a risk-free world.

That’s unsustainable. And when risk is under-priced, it only takes a smallish rise in expectations of risk for near-panic selling to ensue.

This is what happened this week, after a number of anxieties surfaced. First the sharp drop in the Shanghai index showed that financial assets in the fast-growing super-charged economies of China, India, Brazil and so on can go down as well as up.

Also – and probably more importantly – the value of the yen has been rising. So anyone who’s borrowed a load of yen and converted it into another currency suddenly found that the repayment cost has gone up.

Now in those circumstances, some yen borrowers will have tried to liquidate their portfolios of high yielding assets, such as junk bonds or emerging market debt or arcane products such as collateralised debt obligations. But the thing about these seductively high-yielding markets is that they often become horribly illiquid when everyone wants to sell. So investors are instead forced to sell the stuff that can be sold – which is why the price of blue chip UK and US stocks has been falling.

Finally, there have been worries for some time that the US housing-market bubble has been pricked and that there will be horrendous losses for sub-prime lenders or those who’ve lent to house purchasers who couldn’t raise conventional finance (such as our own HSBC, which has recently disclosed losses greater than had been expected and will doubtless disclose more about its US woes in its results on Monday).

The sub-prime market is enormous. But what the investment bankers I spoke to this week are really concerned about is the possible spread of losses from sub-prime to higher-quality home loans and a consequential collapse in consumer spending.

What was that about living in a risk-free world?

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There is a mindset prevalent at our banks that the customer is usually wrong. I was reminded of this recently when having a cup of coffee with the chairman of one of the biggest banks.

He said that the worst thing about being chairman was that he was always being assailed with complaints from friends about alleged mistakes made by his bank. But whenever he investigated, it turned out his friends were simply being dim.

Perhaps this chap has unusually dim friends. But even if he does, his remarks show that few banks yet think of themselves as proper retailers, fighting tooth and claw for every customer in a competitive market.

If they did, they would operate on the basis that the customer is usually right, even when he or she isn’t. But what really grates for most of us is the all-too-common experience of the banks making a genuine error and then taking an age to correct it – and only then correcting it after a lot of shouting.

Which is why many of you will bristle when I point out that the Royal Bank of Scotland has today announced a solid set of financial results: pre tax profits rose 16% to £9.2bn in 2006, its costs relative to income were reduced, and losses on loans stabilised. The one concern that I would have is that growth in its US operation, – in which it has invested so much – has been very lacklustre.

That said, shareholders will largely be pleased – as manifested by RBS’s share price rise this morning. And since millions of us are shareholders through our pension funds or collective investment schemes, we benefit when RBS performs well and pushes up its dividend sharply (as it has today).

RBS also incurred a ÂŁ2.7bn tax charge in 2007, most of it payable in the UK, which is a non-trivial contribution to the public services we all enjoy.

So is it irrational to raise concerns about RBS’s success? Well, as I recently wrote in my blog on Barclays, there is a question to be asked about whether there is sufficient competition in UK retail banking (the conjunction of “retail” and “banking” is not an oxymoron, but is the business of supply banking services to individuals and small businesses). The related question is whether the big banks are earning an excessive return on the capital they have invested in their domestic retail operations.

RBS itself does appear to be having a go at competing: it claims to have the highest share of customers switching accounts from other banks. But that may make RBS the best of a lacklustre bunch, rather than a truly inspirational retailer.

What’s striking is that no bank has broken ranks on the issue of so called “free” banking and penalty charges. Putting to one side the question of whether or not the penalty charges they levy on customers who breach agreed borrowing limits are excessive in a legal sense (which may soon be investigated formally by the Office of Fair Trading), the sheer emotion these charges generate among consumers has surely created a big market opportunity.

Wouldn’t a bank that shouted very loudly that it would cap penalty charges at a relatively low level win both goodwill and lots of lovely new business? If no bank is prepared to do make such an offer, that may demonstrate that the economic model for retail banking is too dependent on fooling customers into believing that current account services are free – which wouldn’t be healthy. And it rather shows that if there is genuine competition in the banking market, which is what the banks claim, it’s not competition as we know it, Jim.

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