British High Street looks threadbare

By Alex Brummer for the Daily Mail
Updated: 04:05 EDT, 1 April 2011

Britain has become used to rising incomes. But the good times are well and truly over.

The Institute for Fiscal Studies calculates that between 2008 and 2011, after-tax incomes will have fallen by 1.6%, the biggest drop in living standards since the early 1980s.

Households are 6% worse off than if the economy had grown in the usual way.

Just to add to the misery, 750,000 middle-income families will become higher rate taxpayers from next week.

Given this background and the further squeeze on real incomes likely to result from rising inflation and the restoration of more normal interest rates it is hardly surprising that consumer spending is being crunched and the retailers are starting to have a torrid time.

Labour may claim all this is a result of Tory cuts. But the squeeze on spending power is largely the result of Labour's 'great recession' and the devaluation of sterling - also a legacy of the Gordon Brown era.

It was the turn of Mothercare to join the injury list with its shares tumbling 9% after it revealed a 2.4% drop in like-for-like sales.

The troubles of the children's clothing firm come hard on the heels of those at Dixons and Home Retail. Even some of the big supermarkets, like J Sainsbury, now look as if they might be running on the spot.

The travel industry is equally affected with the big two companies, Thomas Cook and TUI, warning of lost revenues as a result of North African turmoil and consumer angst.

This year the family holiday may well turn out to be a damp weekend in Margate. And the shopping expedition will be a visit to the local Oxfam store.

Indian takeaway

The timing of Vodafone's buyout of its Indian partner Essar looks good. Confidence in India has never been higher following the World Cup semi-final victory over Pakistan.

The just released census data suggests that on current trends India will have overtaken China as the globe's most populous country by 2030. That should help keep the cell phone user numbers bubbling.

Vodafone's effort to conquer the sub-Continent has been far from smooth. In retrospect the $11bn which former chief executive Arun Sarin paid for control of Essar in 2007 was a high price placing an economic value on the business of a whopping $18.8bn (including debt).

That was by far India's biggest ever inward investment deal and unlike previous big deals done by Vodafone the currency was cash rather than paper.

What Vodafone has discovered is that you can stick your branding all over the country but that does not help the bottom line if the company becomes caught up in a rate-cutting fight.

Nor is it much fun being involved in a seven-year war with a bureaucratic and not entirely pure as snow government over an alleged $2.5bn tax bill.

In itself this might not seem that important but it plays into the hands of critics who argue that Voda's tax planning globally is a little too smart for its own good and that is why it has been (hopefully unfairly) a target of anti-capitalist tax campaigners in the UK.

Despite all of this, taking full control of Essar's mobile operations by paying $5m for the minority stake looks wise.

It gives Voda more power over the enterprise (something which the group has been seeking to achieve around the world) and most of the potential cost already has been laid off in its balance sheet.

A company like Vodafone, which generates a free cash flow of many billions each year, is able to do things like this.

More importantly it is also better able to ride out the competitive storm than some of its rivals. It clearly has the technical know-how to make the most of 3G, having paid heavily for the licences.

If only dealing with its American partner Verizon Wireless were so easy.

Profligate Pru

It will be a disgrace if Prudential shareholders regard it as acceptable that Tidjane Thiam has a huge package of up to £8.4m in pay, share options, bonuses and perks this year after he wasted £400m of their money on a failed takeover.

This means he earns even more than his fellow Ivorian, Chelsea star Didier Drogba.

One of the most vocal investors, Robin Geffen's Neptune, has already voted with its feet by selling off its Pru stake. So far only activists PIRC have raised their head above the parapet.

It would be nice to think the Association of British Insurers (ABI) was singing from the same song sheet.

It will be very disappointing if it turns out to be too supine to have a pop at one of its own.