United Kingdom

ALEX BRUMMER: Business Secretary should act over Ultra

Business ministers, reciting the creed of open markets, have a terrible habit of refusing to intervene in takeovers. 

When forced by political pressure to obtain reassurances about national security, headquarters and jobs stipulations, these are often drawn up in a hurry and are riddled with holes. 

This was the case when Melrose bought GKN and undertakings could easily be subverted. The break-up of Cobham by asset strippers Advent and sale of militarily sensitive flight refuelling technology to a US competitor is another case in point. 

Taking an 'active interest': Business Secretary Kwasi Kwarteng is keeping an eye on the Ultra deal

Now Cobham, acting as a front for Advent, has launched what superficially looks like a full-priced bid for Ultra Electronics. As well as its work on the Eurofighter and the F-35, Ultra is a vital part of Nato's sea defences against the Russian bear. 

As we report today, Ultra's sonobuoys and electronic warfare play a vital part in monitoring Moscow's behaviour in the Mediterranean and other waters. 

To his credit, Business Secretary Kwasi Kwarteng says he is taking an 'active interest'. One trusts it is a more determined stance than he took on the UK's food security following the agreed Fortress bid for supermarket group Morrisons. When it comes to national security, Kwarteng will have all kinds of powers available. 

Under the Enterprise Act 2002, he can intervene on defence of the realm grounds. A predecessor, Andrea Leadsom, ordered a national security review of the Cobham deal but still nodded it though in the dead of night, even though a redacted report found it contrary to the national interest. 

The new National Security & Investment Act does not become fully operational until January 2022. That has not stopped US law firms from seeking prior clearance for certain deals, recognising unusual retrospective powers in the act. 

But most importantly, Kwarteng has the 'bully pulpit' of his Cabinet status and with the right words could send the boarders scurrying away. He should act without delay before another critical UK defence champion does a disappearing act.

Bubble trouble 

Rishi Sunak lit a fire under Britain's house prices when he announced a stamp duty holiday at the start of the pandemic. 

The International Monetary Fund's July economic update cautions that sharply rising house prices are among factors which could lead to 'persistently high inflation'. 

The stamp duty break, which ended in June, has driven prices up, along with Help to Buy, mortgage guarantees for first-time buyers and competition among providers. 

Data from Zoopla records that house prices are almost a third higher than before the financial crisis. The distribution is variable as city dwellers have sought rural and coastal retreats in the pandemic. 

A surge in prices creates a mirage for first-time buyers. There is more assistance than ever available, but with prices climbing so strongly and average earnings (until recently) sagging Nationwide estimates first-time buyers need a mortgage 5.6 times salary against the 3.2 times ratio around for two decades. 

The jump in the ratio can only serve to widen the inter-generational divide over a range of issues from pensions provision to the cost of university education. 

The Bank of England is monitoring prices and the social distortions caused. There are fears that in a low interest rate environment, lenders may be over-exposed to borrowings. Britain has a history of housing bubbles bursting after over-exuberance. 

The Bank has the tools to calm excessive lending. It could lower the proportion of loans lenders can devote to mortgages as a percentage of total lending. Policy is not there yet, but big brother is watching.

Last stop 

Matthew Gregory may have been victorious in his battle with Coast Capital over the £3.4billion sale of First Group's two key US businesses, yellow school bus and transit. 

But he has lost the war. 

His decision to step down before a successor could be named, leaving chairman David Martin at the helm, looks hurried. 

Gregory's lack of transparency with the broader range of investors over allegations of child abuse on student buses, the last as recently as January, leaves a lingering bad taste, with legal actions possibly coming back to haunt. 

He is a decent person who plugged a pension fund shortfall. But it didn't prove enough to save his skin. 

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