A rebate to customers could spike Blair's guns

Is Kenneth Clarke preparing to cut the ground from under Labour and its windfall tax in next Tuesday's Budget? If he does have a trick up his sleeve, he was keeping it firmly under wraps during yesterday's knockabout in the Commons. In the absence of any detail about how the tax will be applied and who will pay it, Michael Heseltine and John Prescott were largely reduced to trading press cuttings rather than blows.

Should Mr Clarke be in the mood for some advice, however, then here is an idea. Why not trump Labour by announcing that the utilities have agreed to start talking about a voluntary levy payable, not to the Treasury where it would disappear into the entrails of the PSBR, but direct to customers? The utilities might not like it, but it seems a good sight better than the alternatives. If they are to see their balance sheets ravaged, then why not for a cause which might at least gain them a bit of goodwill among their customers?

Certainly it has political attractions for a Government facing possible electoral defeat and a Chancellor struggling with his desire to be remembered for fiscal rectitude. A rebate for customers would be tantamount to an election tax bribe, but a bribe paid for by the utilities, not out of the public sector deficit.

Since the financial markets have, supposedly, already discounted a pounds 5bn windfall tax in the share values of the utilities, the damage should not be too great in City dealing rooms. Moreover, a rebate paid in the form of lower fuel and water bills would flow through into the retail price index and thus reassure the markets that the Chancellor is serious about hitting his inflation targets.

But most important of all, it would put Labour on the spot, forcing it either to scrap the rebate or forsake its only firm revenue-raising proposal. A Tory rebate would, of course, hit shareholders as hard as a Labour windfall tax. But it would avoid the arbitrary and unjust nature of the tax by delivering some of the spoils of monopoly direct to customers. This, after all, was the way the system was always meant to work; the benefits of privatisation are supposed to be reflected in lower prices to consumers, not spirited away by the state. The politics of it too is mighty attractive since it would force Labour to choose between being the party of higher bills or the party of higher taxes.

Fantasy? Maybe, maybe not. But if Mr Heseltine really believes that this tax bombshell is going to explode in Labour's face between now and polling day, he will have to do something to prime the device.

City is in danger of becoming a warehouse

Deutsche Bank's decision to place Morgan Grenfell's unit trusts business under its own direct control in Frankfurt is obviously a justified response to a particular set of circumstances but it also highlights the dangers for the City of the present trend towards foreign ownership. Who and where ownership is based may not seem to matter very much in today's global economy, but clearly it does matter for the City if it begins to lose control of its own destiny.

There are plenty of straws in the wind. Dresdner Bank recently announced that the fund management side of Kleinwort Benson, which it bought last year, would in future be managed out of San Fransisco. There are now similar moves to consolidate KB's forex, derivatives and bonds business into Dresdner's operations in Frankfurt. All this may make sense from Dresdner's point of view but it hardly bodes well for the City. The logical endgame is that the City becomes just a warehouse operation, with the control and decision-making lying elsewhere. If you regard the City as little more than an offshore fiefdom answerable only to itself, this may not seem terribly important. Given how much the City now contributes to the British economy, however, it would be wrong to think this way. It actually matters quite a lot.

At the time of Big Bang 10 years ago, which allowed foreign ownership for the first time, nobody could have guessed quite how much of the securities industry would end up in overseas hands. When all those fuddy- duddy old partnerships finally accepted the inevitable, surrendered to deregulation and sold up, not in their wildest dreams did they anticipate the degree to which they would vanish from the map or become absorbed into foreign- owned concerns.

With SG Warburg's takeover by Swiss Bank, Britain's last hope of developing an independent international investment bank to compete with the best of them disappeared down the plug, leaving just BZW and NatWest Markets as the only British contenders (both of them owned by big retail banks) anywhere near the big league. So far this has not in any way damaged the City, rather the reverse. If history is any guide, however, it will not always be thus. There is a world of a difference between the ruler and the ruled. The City will one day pay the consequences of its surrender.

Safeway may look to Europe once more

David Webster, Sir Alistair Grant's successor as chairman of Safeway, is fond of referring to his new charge as "an immature company in a mature market". And he is not referring to Safeway's use of the toddlers Harry and Molly in its television ads. What he means is that Safeway, in his opinion, is a relatively underdeveloped company with lots of opportunity to grow.

He has a point. Using measures such as sales per square foot, Safeway is a very distant third to the two big boys Tesco and Sainsbury with plenty of scope to catch up. By contrast, many Sainsbury stores are already too busy for customer comfort.

What Safeway has done is seize upon one or two initiatives which highlight its differences with rivals and pummel them for all they are worth. Hence the self-scanning scheme, the automatic payment terminals and all the noise about creches even though they are only in 10 per cent of its stores.

The challenge is to maintain the momentum. In some ways Safeway has been fortunate in that it has benefited from Sainsbury's woes. When Sainsbury starts to fight back (and it is showing increasing signs of doing so), Safeway will find the going tougher.

And for all its emphasis on its new superstores, Safeway still has a large number of older, smaller high street shops with limited parking. No room for creches or fancy coffee shops in these. Safeway has won plaudits in the City for its refusal, thus far, to follow the diversification route by plunging into Europe (like Tesco) or the United States (like Sainsbury). Management is instead concentrating on growing up in the UK.

But that could change. Mr Webster thinks that as the single market becomes a reality, cross-border alliances between European supermarket groups are a certainty. The thinking is that such giants will become necessary if the supermarkets are to maintain their buying power against powerful manufacturing conglomerates. Safeway has already dipped its toe in European waters once. In time, another attempt seems likely.