Lang doesn't buy the Heseltine philosophy

The sort of speech Michael Heseltine would have been happy to make? Pull the other one. Ian Lang signalled a quite fundamental shift in government policy towards takeovers and mergers in a speech to the Adam Smith Institute yesterday. To pretend otherwise, given what he actually said, seems positively disingenuous. Mr Lang insisted that it is not the function of government merger policy to engineer the creation of national champions. If the creation of such champions is at the expense of domestic competition, then they will not be allowed.

Whichever way you read this, it is hard to reconcile with Mr Heseltine's big-is-beautiful, corporatist approach to industry and commerce. Mr Heseltine seemed prepared to forget narrow, domestic competition concerns provided the merger brought about a powerful new British force capable of competing with the world's best on the international stage. Rightly or wrongly, Mr Lang plainly doesn't buy this philosophy.

In so far as it is possible to judge which approach is more likely to benefit the country, the evidence rather leans towards Mr Lang's more traditionalist, Thatcherite view of things. In Britain, large companies already account for a higher proportion of GDP than in Germany, the US and Japan. It can be no accident that all these economies are more successful than our own. Britain's relative lack of success with small to middle- sized companies is one of the symptoms of our post-War economic failure. The culture of takeovers that exists in Britain, and among entrepreneurs the tendency once some success has been achieved to sell up and retire to the country with the labradors, is obviously not the whole story but it could well be part of it.

Common sense, too, tells us that companies with too powerful a position in the domestic market, however internationally competitive they might be, ultimately exploit and fail us. Most things new, beneficial and mould- breaking are entrepreneurially created and developed. Our established, stodgy old insurance companies would never have given birth to something as revolutionary as Direct Line, for instance.

But whether Mr Lang was thinking in these terms when he articulated his new-look mergers policy is more questionable. More likely this is an on- the-hoof response to the pressures of right-wing Tory backbenchers, who increasingly seem to set the agenda for government policy these days. Moreover, Mr Lang needs to make some sort of sense out of the policy decisions made on electricity bids. Now that we finally know what Mr Lang's priorities are (no sarcasm intended), all becomes clear. He blocked National Power and PowerGen from bidding for regional electricity companies because, although these takeovers might have created powerful new national champions in the electricity industry, they might also have damaged nascent competition in the domestic electricity market. Less clear is why he should have blocked the American bid for National Power, which by breaking the company up promised to create more competition. But then, er, that would not have gone down well with the right wing little Englanders either, would it? Consistency, it seems, won't be one of the new approach's strong points.

Has Mr Lang signalled the end of the merger boom? Certainly it is hard to see how some recent deals, such as Scottish & Newcastle's acquisition of Courage or the GEC bid for VSEL, could have been allowed under the new guidelines. Bass can also probably kiss goodbye to any hope of taking over Carlsberg Tetley. But whether rationalising mergers such as that of Royal Insurance and Sun Alliance also fall foul of the return to old values remains to be seen. A couple of big City deals are said to be virtually ready to go. They are likely to provide an interesting test.

Fear behind the big words at the BBC

When we think of pay-TV, we tend to think about Rupert Murdoch and his wildly profitable Sky satellite service. In fact, the UK has had its home- grown pay-TV service for decades - it's called the BBC.

The whole matter of the licence fee was the leitmotif at the "all-singing, all-dancing" presentation yesterday of the BBC's blueprint for the digital age. The BBC is ready to give viewers a wonderful package of services, in addition to the wares on view on BBC1 and BBC2. A 24-hour news service, programme notes, biographies of our favourite stars - all this, and wide- screen TV and CD-quality sound too. And all for free, except for the little matter of pounds 400 for a set-top box to unscramble the digital signal.

But there's more. The BBC wants to offer subscription channels as well, available to those who pay extra. These will be developed without using the licence fee, the Beeb swears. It intends to work with private-sector partners, as it has already done with Pearson in developing its UK Gold satellite and cable service. It also hopes to see its borrowing capacity expanded - provided it can convince the Government that the fresh funding is linked to its purely commercial, market-based activities, and in no way is tied to the licence income.

One must have some compassion for the BBC's hard-working strategists, who face a nearly impossible task. On the one hand, they must convince us all that the corporation remains a public service broadcaster, worthy of our yearly, compulsory support. But in a multi-channel environment, faced with competition from the likes of Mr Murdoch, Michael Green and Gerry Robinson, not to mention Disney and Time-Warner, the BBC must also be a commercially minded participant in the media market.

Squaring that circle is just about possible today, when the BBC takes 45 per cent of all TV audience share. But what about in 10 years? At what point is the licence fee no longer sustainable? At what point do we say, the BBC is a broadcaster comme les autres?

The digital blueprint published yesterday contained hint after hint of this harsh reality. True, its authors talked about the real "opportunities" afforded by the digital age, and about the stellar BBC brand name. But there was fear behind the big words. Consider how plaintive these words appear: the BBC must support "the best British talents" (at what cost?); it must buttress "our unique culture, heritage and traditions" (even if the market doesn't want to?).

There is a difficult contradiction between public service and the market. By grasping the digital future by the lapels, the BBC itself has opened the debat e again about the future of public service broadcasting in the UK. If the BBC wants us to pay extra for certain services, then why not go the whole hog, and ask us to pay for even the mainstream channels? The licence fee is much lower than the price of a Sky subscription for a year, so perhaps viewers wouldn't mind coughing up voluntarily. It will become increasingly difficult to sustain any other argument. Either we have a publicly funded and accountable broadcaster, protected from the indignities of the market, or a commercial BBC, vying with other broadcasters for the pounds in viewers' pockets.