Quit while you're ahead

What do Chancellor Gordon Brown, BP's Lord Browne and fund manager Anthony Bolton have in common? asks Merryn Somerset Webb. They should all have got out before their respective stars began to wane.

IT MUST be irritating for Gordon Brown that during his long wait for Tony Blair to go, his reputation as an economic manager is taking a battering.

This week the chancellor's favoured measure of inflation, the consumer prices index (CPI), has failed him on two counts. First it has risen to 3% despite his plan that the Bank of England should keep it at or just below 2%. And second, it has been shown to be considered irrelevant by most commentators and by much of the population.

National Statistics' new personal inflation calculator (see: What's your personal inflation rate?) allows people to check whether inflation has gone berserk in their town: in almost all cases it has. Worse, their suspicions are backed up by the fact that the retail prices index (the RPI is the one that includes housing costs and that most people use in wage negotiations) has risen to 4.4% its highest level for 15 years.

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Gordon Brown: took the credit for low inflation environment

Brown would say that none of this is his fault, that the Bank is in charge of interest rates and inflation and that it perhaps should have raised rates earlier (or at the very least not lowered them in 2005) to stop prices rising as they have. This is disingenuous: if the Bank had been targeting the RPI, I dare say it would have raised rates some time ago, given that the index has been well above 2% for many months, but it wasn't. It was targeting the CPI like Brown told it to.

The rise in inflation isn't necessarily Brown's fault either it is as much down to global factors as anything else but given that he has taken credit for the low inflation, low interest-rate environment of the past decade (when he probably shouldn't have), it comes as no surprise that he is taking much of the blame for both now. Bank rate could easily end the year at 5.75 or 6%.

Some commentators are trying to find the upside in this situation. Rising rates, they say, are good for savers. Well, yes and no. If inflation is 4.4% and you are getting 5% on your savings you are still losing money in real terms after you have paid tax even if you are a basic-rate payer. So it's good in that you lose a little less but it isn't enough to stop your savings shrinking instead of growing.

If that wasn't enough to make people once convinced of Brown's genius think again, the accountancy firm Price Waterhouse Coopers last week provided research that points out that for the chancellor to continue to meet his many spending commitments, taxes are going to have to rise by the equivalent of 4p on the basic rate of income tax. Brown's star is falling.

Lord Browne: inadequate leadership at BP

Still at least he isn't alone. The other one-time City star on the way down this week was Lord Browne of BP. Browne has long been one of Britain's most admired business leaders, but has now decided to step down from his position as chief executive in July, 18 months earlier than expected.

When he does it will be with his reputation badly dented due to the publication of a critical report into BP's safety management after the explosion at a refinery in Texas in 2005 that killed 15 people. He leaves behind him a company that has been publicly declared to have been inadequately led, to say nothing of a share price that isn't much higher than it was two years ago. I wonder if Browne and Brown aren't beginning to wish that they hadn't had quite such long last hurrahs.

It has been clear for a long time that both intend to leave their positions, and they have found during the past year of their tenure their genius has been questioned. That must be irritating.

Anthony Bolton: investors expect more

In fund-manager land there's someone who might be feeling rather the same Anthony Bolton. Just as Brown has long been spoken about as one of Britain's most admired chancellors and Browne as one of our most admired corporate leaders, Bolton is usually called Britain's most admired fund manager.

It is a title he has deserved for many years he has handed a 20% annual compound return to Fidelity investors for more than 25 years, three-and-a-half times the return from the FTSE 100.

Yet having announced last year that he was beginning to wind down and having split his fund in half, I wonder if he, too, isn't beginning to think that the gradual approach to moving on might not be the best one. You couldn't actually say that Bolton has done badly over the past year. He hasn't he returned almost exactly the same as the Footsie at 16% last year. It's just that investors expect so much more.

Last year's return was the worst one Fidelity has had relative to the market in eight years, and if it has another one like that, Bolton's career is going to end on a low rather than on the high it deserves. At the end of one's working life there isn't time to make up for mistakes.

The lesson from all this is fairly simple. Chancellors, chief executives and fund managers just like sportsmen should probably quit as soon as they start thinking about it (I accept this isn't that easy in Gordon Brown's case) or at least when they are ahead, and investors and consumers should never wish upon a star.

First published in The Sunday Times 21/01/07

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.