Jeremy Warner's Outlook: No smell of roses yet, but right stuff for M&S

Paul Myners, chairman of Marks & Spencer, set out to excuse another terrible set of results yesterday by saying there was little doubt as to the scale of the challenge which Stuart Rose, the chief executive, and his colleagues had inherited.

Paul Myners, chairman of Marks & Spencer, set out to excuse another terrible set of results yesterday by saying there was little doubt as to the scale of the challenge which Stuart Rose, the chief executive, and his colleagues had inherited. This is a bit rich given that for nearly two years before stepping up to the plate to become chairman, Mr Myners was on the board of M&S as a non-executive director, yet it wasn't until M&S's doom was upon him in the shape of the retail financier Philip Green that he did anything about it.

Still, to use that terrible cliché, we are where we are, and if you ignore the further 4 per cent fall in like-for-like sales, the admission that things have since got worse still, and the collapse in half-year profits, yesterday's statement made relatively encouraging reading. No, really. No sarcasm is intended, for if Mr Rose is as good as his word, he seems to be doing most of the right things, down to clearing out the army of management consultants that had overrun the place under his predecessor, Roger Holmes.

Out too goes all but 10 of Mr Holmes' 31 strategic initiatives, as well as the last remnants of the old guard - the finance director, the head of menswear, childrenswear and home, and the head of human resources. With just three executive directors left at board level, this in itself ought dramatically to improve accountability and response times.

Wisely, Mr Rose doesn't promise quick fixes. He expects a further deterioration in like-for-like sales over the coming months, and reckons he will be doing well if they are growing again by this time next year. Yet reasonably credible plans for improving profits through cost cuts and greater efficiency have been put in place. The strategy for reviving the brand also looks a welcome return to common sense after the bedlam of previous attempts. Mr Green threatens to return if by the middle of next year the share price is still languishing and the performance continues to look askance.

Yet I think he's probably missed his chance for good. Even if Mr Rose fails in his turnaround strategy, there's still plenty of room left at M&S for a scorched earth defence. The £2.3bn buy-back didn't begin to tap that potential and, having seen the vast dividends Mr Green is paying himself from Arcadia and Bhs, institutional shareholders are determined he should never be allowed to steal another company from them again.

Pensions downer

The Chancellor, Gordon Brown, has plainly decided that it is not worth waiting for the outcome of Adair Turner's final report on the pensions crisis to know what he should be doing about it. In a speech to the CBI annual conference yesterday, he all but ruled out any increase in state spending on pensions for the foreseeable future. Treasury officials were quick to downplay suggestions of a split with the Prime Minister on the issue, yet it is hard to see it in any other light.

The Chancellor could not have been more unambiguous about it if he had appeared before delegates with an "I hate Tony Blair" badge stuck to his lapel. While Tony Blair has signalled support for the idea of a Citizen's pension, available to all at a rather higher level than today's basic state pension, Mr Brown said there was no question of taxpayers taking on "additional responsibilities", and warned that it could wreck the economy if he went down that route. He had no intention of restoring the earnings link to the basic state pension and would resist any attempt to do so.

The problem the Chancellor has got is that his supposed quarrel with the PM is now such a feature of the political landscape that almost everything he does or says is seen in that light. Even if there wasn't a disagreement, one would be imagined. Yet on this issue, as on so many others, there plainly is one.

The failing in British state pension provision is that although it is affordable, in marked contrast to some European countries whose public finances stand to be wrecked by relatively generous public pension commitments, it is also hopelessly inadequate, leaving retirees to fall back either on means tested benefit or on privately funded arrangements to keep body and soul together. The Chancellor has poleaxed the latter while he is also the architect of the present system of means testing, and therefore determined to defend it to the last.

Two points seem worth making. It's all very well for the Chancellor to say he won't play fast and loose with the public finances by restoring the earnings link, but he's not applied the same degree of parsimony to public sector pensions, which have been left completely unreformed on generous final-salary terms despite a massive expansion in the number of public servants. The public sector is only 18 per cent of employment in the UK, but it now accounts for nearly 30 per cent of accrued pension rights, all of which has to be financed on a pay-as-you-go basis out of general taxation.

The second is that means testing is destroying the incentive to save for all but the better off, so much so that according to some forecasts, four in five pensioners will eventually be entitled to means tested benefits. In such circumstances, the Government might as well plan for a higher basic state pension, for one way or another, the great bulk of people will be entitled to it. David Willetts, the shadow Work and Pensions Secretary has said he senses a political consensus developing against means tested pensions benefit. He plainly forgot about the Chancellor when he said that.

Diwali gold fever

For gold bugs, early November marks a special time of year when the Hindu festival of Diwali combines with the peak of India's marriage season to produce a surge in demand for gold jewellery. Already buoyed by a renewed round of turmoil in the Middle East and worries about the future direction of the dollar, the gold price briefly rose to a new 16-year high yesterday. All those clever chaps who invested in gold as the dot.com boom reached its zenith in mid-2000 will be feeling particularly pleased with themselves.

Since then, the gold price has soared, leaving equities, bonds and even domestic property far in its wake. Yet on any kind of long-term perspective, gold has been been a disastrous investment. Fast back 25 years to 1980, and the gold price was nearly twice as high as it is now, even in nominal terms. The price today is scarcely any higher than it was 10 years ago (in dollar terms at least), making it a worse performer over that period than both equities and bonds. Remember, gold doesn't carry any income, so the real performance is correspondingly poorer.

None the less, there are a number of factors that mark gold out from the usual ups and downs of the commodities cycle, even now long after its special status as a monetary reserve for leading central banks has largely gone.

One is that unlike most commodities, it is essentially a luxury, whose overwhelming use is for jewellery or hoarding. Most of its industrial uses are now gone. However, that hasn't stopped the yellow metal from benefiting, like most other commodities, from Chinese and Indian industrialisation. Higher spending power has gone hand in hand with economic advancement, and today the big growth in demand for gold comes from the Far East and India.

On the other hand, gold may be losing one of its other attributes, which is as a safe haven in times of crisis. Gold may look like a poor investment from the point of view of stable, Western economies, but in many areas of the world it has traditionally proved a useful store of value in times of financial crisis and currency turmoil. With increased globalisation has come a breakdown in capital controls, and even in developing countries it is today far easier to diversify capital risk than it used to be. So gold may be shedding some of its popular appeal as a form of safe deposit box, even in regions of the world where banks are still prone to go bust.

Gold will never entirely lose its allure as the ultimate form of currency. There's still talk, for instance, of a single currency based on gold coinage for the Middle East. But you invest in it at your peril. Priced in dollars, it remains highly dependent on the fortunes of the greenback as well as the vagaries of supply and demand. Just now, it is once again the height of fashion. Don't bet on it remaining so.

jeremy.warner@independent.co.uk