To death and taxes add a rate cut

Yesterday's news that the Bank of England's monetary policy committee teetered on the brink of cutting interest rates this month surprised many in the City.

Most had expected maybe two of the nine MPC members to vote for lower rates and no one was sure how the new boy, Goldman Sachs's David Walton, would lean. In the event, he wanted cheaper money, along with Charlie Bean, Kate Barker and Steve Nickell. One more vote and money would indeed have become cheaper on July 7.

At the time, we thought there was a good chance of a cut and that the City's economists were wrong to believe the MPC would vote so emphatically against - and we were nearly right. But it is now just a question of timing.

The MPC, led by its chief economist, Mr Bean, is busy preparing its August inflation report. After the recent downward revisions to economic growth figures and the steady rise in unemployment over the past few months, it is almost certain that the committee will come up with weaker forecasts for both growth and inflation. The response will be an August rate cut.

How far and how fast the committee cuts will depend on whether consumers respond by borrowing and spending more, or whether high levels of debt and high house prices mean things will continue to slow until the excesses of recent years are corrected.

The slowing economy also has implications for the controller of another economic policy lever, Gordon Brown. Yesterday's fiscal numbers made grim reading. The record June deficit shows that the public finances are getting worse, not better. The consumer slowdown causing concern for the MPC is also a worry for Mr Brown as VAT revenues -linked to spending - are 3.6% lower than last year.

As Stephen Lewis, of Monument Securities, puts it so succinctly: public finances are "in disarray". And the chancellor's move to change how the "golden rule" is calculated does not change that one iota.

At some point, taxes will have to rise.

Coin clipping

Rather than simplifying Shell's life on the markets, the oil group's move to consolidate both its board and shareholder structure - consummated on Tuesday - has had the opposite effect.

The traditional market game of playing the small pricing discrepancies between the old British entity, Shell Transport & Trading, and the old Dutch entity, Royal Dutch (caused by differing tax treatment, dividend anomalies and exchange rate movements) is one of the oldest known arbitrage opportunities. Some men, and even possibly a few women, have spent entire careers in the City of London playing it.

The unification of Shell - hurried by last year's oil reserves scandal - might have put an end to such coin clipping, except that we now in effect have four different types of shares: A and B shares traded in London, and then A and B shares traded in the Netherlands through Euronext.

Most of the old differentials, involving tax and currencies, are still in play, but we now have an important new variable (as far as British-based investors are concerned) in that Shell stock traded in Amsterdam is free of stamp duty.

For arbitrageurs, this spells another trading opportunity. For the City and the chancellor it is more of a concern, since trading in what is one of our largest companies is now likely to move abroad. Even more worrying is the fact that the fortunes of a good portion of Britain's pension savers are tied to Shell. Along with BP, these two oil companies now account for nearly 20% of the FTSE 100.

Like it or not, millions of Britons' retirement benefits are now linked to the oil price. Call it financial climate change.

Who let the dogs out?

Having delivered Allied Domecq into the hands of Pernod Ricard, Gerry Robinson, the drinks company's former chairman, is at a bit of a loose end.

Mr Robinson, who dispensed management know-how to ailing private companies in the television series I'll Show Them Who's Boss, now plans to do a little trouble-shooting of his own.

He has set up a new firm - Raphoe Management - to identify and invest in companies with turnaround potential. Frankly, he is not alone. There are hundreds of private equity specialists and entrepreneurs trying to do the same. But Mr Robinson does not intend to work his management magic in private. His idea is to take no more than 10% of an underperforming company; shareholders get some cash and a stake in a company with new management and capital structure. If all goes to plan, the firm metamorphoses into a stellar performer, and Gerry and shareholders will be laughing all the way to the bank.

Nice idea. Not so easy to achieve. Remember the Knutsford Four? Archie Norman, Nick Leslau, Nigel Wray and Julian Richer had similar plans. Unfortunately, they couldn't locate any suitable corporate dogs.

And then there is the problem that investors in underperformers tend to prefer cash to promises. When Philip Green first tried to bid for M&S last year he offered shareholders 25% of the equity in his Revival bid vehicle.

But even with his track record, shareholders reacted with a loud snort.