Business Analysis: Blair brief puts business centre stage

Tony Blair's third term promises big changes in a number of key areas for business and industry. The prospect of a new generation of nuclear power stations will thrust energy policy centre-stage, while transport is also likely to come to the forefront. Then there is the pensions crisis to tackle and the burden of red tape to ease. These are the dogs that did not bark during the election campaign, but over the next parliament they will take on increasing significance. We look at the challenges facing Labour in the next five years and its ability to deliver.

Tony Blair's third term promises big changes in a number of key areas for business and industry. The prospect of a new generation of nuclear power stations will thrust energy policy centre-stage, while transport is also likely to come to the forefront. Then there is the pensions crisis to tackle and the burden of red tape to ease. These are the dogs that did not bark during the election campaign, but over the next parliament they will take on increasing significance. We look at the challenges facing Labour in the next five years and its ability to deliver.

Energy

One of the most pressing issues during Tony Blair's third term will be energy policy. The Prime Minister is personally committed to a renaissance of nuclear power and now, with a pragmatic Blairite minister, Alan Johnson, in charge of the newly named Department of Productivity, Energy and Industry, he has an ally to turn that vision into reality.

The argument in favour of nuclear has steadily gained ground in Whitehall as Britain becomes a net importer of gas, environmental opposition to onshore wind farms gathers pace and increasingly onerous emissions standards force the closure of coal-fired stations. Britain's 12 nuclear stations currently provide 23 per cent of the nation's electricity. But unless they are replaced with new ones as they reach retirement, there will only be three left by 2020, producing just 7 per cent of our needs.

So far the Government has relied on renewable energy to fill the gap and meet targets for cutting greenhouse gas emissions. But this could be at a prohibitive cost. The economics consultancy Oxera calculated it would cost taxpayers £12bn.

Still, formidable obstacles remain in the way of a new nuclear programme - safety and waste disposal to name but two. Messrs Blair and Johnson will also have to convince the City it is financeable and that probably means tearing up Labour's reform of the energy trading market to give baseload nuclear power long-term guaranteed prices.

Prospects of progress: 5/10

Michael Harrison

Productivity

Britain's poor record on productivity has long been the Achilles' heel of an otherwise successful economy. Employment has surged, the jobless total has tumbled, growth and inflation have become markedly less volatile and yet the efficiency of the British workforce has "flatlined" at around 2 per cent over the past decade.

The only place where productivity is evident is the Treasury where the number of pages devoted to it in the Budget has more than doubled from 16 in 1999 to 38 this year.

Now, after eight years of grappling with it, the issue has been granted pride of place in the name of the new department of Productivity, Energy and Industry that replaces the DTI. Alan Johnson inherits a mixed legacy. A report by the National Institute of Economic and Social Research published before the election branded productivity as a "substantial flaw".

Business groups say their members are constantly striving to boost productivity to survive in an increasingly competitive world and argue the Government should put its own house in order by reducing the volume of regulation and boosting the productivity of its own workforce. The Government has responded by accepting the recommendations of both the Hampton report, which proposes reducing the burden of inspection, and David Arculus' Better Regulation Task Force, which called for a 25 per cent cut in the burden of red tape, saving business £16bn.

Prospects of progress: 3/10

Philip Thornton

Pensions

One of the biggest fears for business over the next four years is a move towards compulsory pensions. With the majority of people not saving enough for their retirement, and the state unable to cope with its growing burden, the Government is quickly realising it needs to take action. The choice is stark - force workers to save for their old age, reduce the benefits they receive, raise more in taxes or lift the retirement age.

Although compulsion is still the least favoured option, the new Work and Pensions Secretary, David Blunkett, has not ruled anything out. The Government has promised to set out its pensions strategy after Adair Turner, the former director general of the CBI, publishes his recommendations this summer. Changes to the state pension, including a reduction in means-testing, are likely to be top of the agenda. But it remains unclear how much emphasis Mr Turner is to place on businesses.

For those companies which have final-salary schemes, there are several other areas of government policy which could hit their bottom line during Labour's third term. Final-salary schemes have already been forced to contribute to a new safety net - the Pensions Protection Fund - launched last month. But with hundreds of pension schemes having gone bust before the PPF was created, the Government is still considering how to raise the billions it needs to give these people their pensions back.

Prospects of progress: 7/10

James Daley

Transport

Alistair Darling, the Transport Secretary, is expected to decide "in principle" to press ahead with a dedicated high-speed railway line between London and the North. Mr Darling indicated in February that the Government was looking into the feasibility of such a multi-billion pound link. It is thought that Mr Darling will persevere with some kind of public-private partnership, which could mean years of delay before the financial package is in place.

Expect few major initiatives elsewhere in the rail network. The new all-powerful rail directorate will simply expect the present system to work more efficiently, with some little-used rural lines closing down.

Within the next year or so Mr Darling is set to give the final go-ahead for the construction of a third runway at Heathrow. A series of government-sponsored working groups are trying to ensure the expansion proposed in the 2003 White Paper will not infringe tough new European environment laws.

It will be more difficult to arrive at a final decision over the proposed £4bn expansion at Stansted. Low-cost carriers already using the airport have said they will refuse to pay higher charges to fund the project, while airlines at Heathrow will take legal action if there is any question of cross-subsidy.

The Government backs road pricing based on satellite technology, to replace vehicle tax and fuel duty over the next 10 years.

Prospects of progress 3/10

Barrie Clement

Privatisation

As a former postman, Alan Johnson, the new Productivity, Energy and Industry Secretary, will have a special interest in the future of Royal Mail. The postal service is the only large industry left under state ownership, unless one includes the rail network, which is back under de facto public control.

Michael Heseltine tried and failed to privatise the post when the Tories were in power and Peter Mandelson would have done something similar in the first Labour administration had he survived as Trade and Industry Secretary for any length of time.

Labour's current policy is that it has "no plans" to privatise Royal Mail. But there are a number of ways in which it could widen ownership of the company short of this. One idea is to give shares in the business to its workforce, gradually turning Royal Mail into an employee-owned company, just as the National Freight Consortium became.

The radical restructuring of Royal Mail in the last three years under the chairmanship of Allan Leighton has turned losses of more than £1m a day into an operating profit of £500m for last year. Advocates of an NFC-style sell-off argue that Royal Mail's balance sheet is now strong enough to borrow the £2bn it could cost to buy out part of the Government's shareholding and take a chunk out of the company's £2.5bn pension deficit.

Mr Leighton pioneered employee share ownership at Asda, and may leave a similar legacy at Royal Mail.

Prospects of progress: 6/10

Michael Harrison