City would be wrong to think nothing will change

I'm not going to even try and address directly the question of what Labour's landslide victory means for the markets, not least because initial reaction yesterday was the exact opposite of what everyone expected. Most people assumed that a Labour win would be bad for shares but good for the pound. That was not the verdict of markets on the first day of "the new dawn". Personally I never did buy the theory that a Labour win would cause the pound to strengthen yet further, or that it would necessarily be bad for corporate Britain.

The truth of the matter is that because New Labour is an unknown quantity, with few declared policies directly affecting business, its long-term implications for markets are, for the time being, impossible to call. Labour is committed to leaving economic policy broadly unchanged, it wants a minimum wage but hasn't yet said what it will be or what form it will take, it intends to implement the Social Chapter, but that won't mean a lot for the vast majority of businesses, and it intends to push ahead with a windfall profits tax on the privatised utilities. There are few clues as to what it intends to do on industrial or competition policy, and none whatsoever on monetary union.

All this, however, is not to underestimate the enormity of what's happened. It may well be that markets haven't yet fully appreciated it. Tony Blair has been given carte blanche to do exactly what he wants, at least for the next five years. His desire to win a second term will temper his reforming zeal to some extent, but he is not going to miss his chance to leave his mark on history.

Most people have their own story about that point of realisation - the realisation that Labour really had changed under Tony Blair, and changed dramatically. For me, it was listening to Alistair Darling, likely to be appointed the next Chief Secretary to the Treasury any moment, talking about the City. I'd been playing devil's advocate, trying to make him say something Old Labour. Surely you are going to do something about that Square Mile of self-interested greed, I asked. The City is loyal to nobody's interests but its own, it has milked and destroyed our industries, and it will do its utmost to destroy you and your policies too if you ever get elected.

We've got no problem with the City, said Mr Darling, with apparent sincerity. The City is a British success story and we'll do everything we can to support it when in government. I still find that a remarkable thing for a Labour politician to say. But while I believe him, it is impossible to think Labour will leave the City entirely untouched. I'm not talking here about reform of City regulation, which in any case is likely to come quite a long way down the the legislative queue. I'm thinking more about the power of the City over the national economy, its short-term approach to money and investment and the often high cost of capital.

There is not much Labour can do directly to force the City into a more politically correct approach without also undermining many of the things that make Britain so successful in financial services. But it can remove some of the in-built biases in the system towards the City's short-termist and monopolistic approach. The most obvious of these is the tax credit on dividends, the effect of which is significantly to favour indirect investment over direct and encourage companies to pay out their profit in dividends rather than re-invest it in their businesses. There are many other similar biases in the fiscal and legal system.

With Margaret Beckett now installed as President of the Board of Trade, we can also expect a much tougher public interest stance on mergers and a competition policy which vigorously favours the interests of consumers and employees over those of the City and big business. In summary, the City would be wrong to assume that just because Labour has changed so much, nothing much will change

Newspapers love a good scandal. This is as true of the restrained and arcane environment of the business pages as it is of any other part of the paper. A scandal lifts a business page as much as it does a front page. So as journalists we should perhaps be grateful to Andrew Regan and his crew for giving us something to write about when everything else outside election campaigning seemed to be grinding to a halt.

Even for journalists, however, scandal is not without its dangers. With the reporting of a big scandal, there is a natural tendency to let rip, for the usual disciplines to fall by the wayside in the heat of the chase. This is less true, perhaps, of City scandals than political ones, for those caught up in them are generally powerful organisations prepared to spend big money on protecting their good name. I'm not objecting to this, you understand, for there is nothing wrong with trying to stop over- zealous journalists getting carried away with themselves and writing what they want to believe is the truth rather than what is actually true.

So it seemed reasonable enough for Jupiter International to employ a top firm of libel lawyers to fire us off a stiff letter warning that if we persisted in trying to drag their client's name through the mud, then they would take all necessary steps to protect Jupiter's position and reputation.

The problem is that in this case, we hadn't actually accused Jupiter of anything. What we had done is accurately report that SBC Warburg, advisers to the Co-op, had written to the stock exchange asking it to investigate dealings in Lanica Trust, Mr Regan's publicly quoted company. In particular, Warburg wants the Stock Exchange to look at dealings in Lanica shares by those who had invested in Galileo, the vehicle Mr Regan had intended to use for his assault on the Co-op. Jupiter, with Schroders, Killik & Co and others, was one of those investors. Along with some of the others, it also bought shares in Lanica Trust.

It was entirely reasonable of SBC Warburg to question whether this could have amounted to insider dealing. Here's why. Lanica, the publicly quoted company, was essentially a shell operation when Mr Regan bought into it, with net assets of only pounds 3m. Then, unbeknown to all but a few, it sets up Galileo, a subsidiary with paid up share capital of pounds 9m. This in itself could be said to constitute inside information. Killik insists it did not know what the purpose of Galileo was when it put pounds 2m of its client's money into the vehicle, but actually that may be irrelevant. Couldn't the mere setting up of this vehicle be described as price-sensitive information?

We don't yet know precisely when the Galileo investors bought into Lanica, or what the circumstances surrounding these purchases were. But it is certainly something that demands investigation. As does the assertion by Jupiter's lawyers in their letter to us that any allegation of insider dealing is unfounded "not least because all Jupiter's dealings in Lanica Trust shares have been private, off market deals, and therefore by definition cannot be insider trading". That was an exemption once upon a time, true enough, but it was swept away by the 1993 Criminal Justice Act in all but limited circumstances. Perhaps they might illuminate us further.