The advance version of Rishi Sunak’s grand bargain for the retail energy sector, to be presented in full on Thursday, sounds a reasonable fudge. All households will probably get a £200 rebate off their bills, to be funded via vast loans to the supply companies; and low-income and vulnerable customers will get further support from the public purse.
In its own terms, it’s coherent: knock the sharp edges off April’s hike in bills and pray that wholesale gas prices plunge before next winter. But let us hope the chancellor answers this question: what’s plan B if wholesale prices don’t fall over the course of the year?
That, unfortunately, is how the future currently looks. Regulator Ofgem, also in action on Thursday, is likely to lift its price cap from £1,277 to about £2,000 but worse is coming down the track. Analysts currently project that the mechanical formula will spit out about £2,300 for an average dual-fuel bill in October’s adjustment.
If that materialises, would Sunak sanction even more loans to defer the moment at which the full blast of higher prices is felt by high-income customers? Remember that Bulb already sits on the state’s book, supported by a £1.7bn loan of its own. If the £200-a-household exercise involves £5.5bn (which is how the maths on 27m homes comes out), it requires little imagination to see how the state’s lending exposure could quickly approach the £10bn mark. That is a serious sum, especially when more corporate casualties are expected.
Doing nothing was not an option for Sunak, but finding a safe exit from this mammoth intervention could prove the hardest part. The bet here is not every billion will be returned to the Treasury.
Vodafone’s progress on hold
The cynical way to view chief executive Nick Read’s latest pitch to Vodafone’s suffering shareholders is to call it another airing of the “give us time” routine. But Read may have a point: you can’t just dial up deals.
Talk about pursuing transactions with “multiple parties in multiple markets” is really a way of saying that Vodafone is game for a spot of “in-market consolidation”, in the jargon, if only regulators and other companies can be persuaded to play ball.
Has a working-from-home pandemic reset competition rules? Will EU regulators now tolerate a reduction to three big mobile operators in a member state if faster 5G rollout, for example, is promised in return? If so, Vodafone might get somewhere in Spain, Italy and Portugal. And the UK, where a Vodafone-Three tie-up is constantly rumoured, can ignore Brussels if it wishes these days. But it takes two to tango, which seems to be one of Vodafone’s struggles.
Similarly, Read can argue that he has been trying to make things happen on the masts side. The separation of Vantage Towers via a listing in Frankfurt did nothing for Vodafone’s share price because a 82% stake was retained, but the nucleus of “a European champion”, as he puts it, was created. It just needs one or both of Deutsche Telekom or Orange in France to perform their own internal re-jigs.
In theory, the arrival of Cevian as an activist investor puts a rocket under management. In practice, simplification may be a slower burn than everyone wishes. In the meantime, Vodafone could do itself a favour by finding non-executives with telecoms expertise; on that score, at least, it’s got no excuse for delay.
Rattled Hands
Annington Homes’ threat to sue the Ministry of Defence was virtually guaranteed when the landlord cried “expropriation” last week after the MoD said it would explore ways to take back control of 38,000 military homes by exercising “statutory leasehold enfranchisement rights”.
The new twist on Wednesday was the offer by Annington, controlled by Guy Hands’ private equity firm Terra Firma, to settle the dispute peacefully. Would the MoD like a one-off refurbishment payment of £105m? Or perhaps it would prefer to buy the whole portfolio at its market price (or valuer CBRE’s estimate of a market price) of £7.97bn?
On the face of it, it’s hard to see why the MoD would jump at either proposal. A sum of £105m ain’t a knockout when you consider that Annington paid a dividend of £794m last autumn. As for the buying the whole bundle of properties, surely the MoD’s aim in launching a test case was to establish, first, if the enfranchisement principle applies, and, second, where an independent valuer would set a market price.
This battle may not go the distance, but one suspects there are a few more rounds yet. As things stand, the MoD can be mildly encouraged by developments. Hands sounds rattled.
