Michael Harrison's Outlook: Walsh needs to stand firm as British Airways cabin crew pose first real test of his resolve

Time to replace renewables levy; Scardino surely not ready for swansong

It is ten years since British Airways last had a cabin crew strike on its hands. In those days, the airline was run by an unpopular chief executive in Bob Ayling seeking to force through an equally unpopular cost-cutting drive euphemistically known as the Business Efficiency Plan. With hindsight, the cack- handed way that dispute was dealt with by BA's macho-style management put the skids under Mr Ayling. His reputation never recovered. Three years later with BA's profits in a nosedive and its ethnic tailfins frantically being repainted in the colours of the union, he was fired. Is history going to repeat itself?

Willie Walsh, the man currently with his hand on the BA joystick, is certainly facing his toughest industrial relations test since he became chief executive 15 months ago. The series of planned strikes by cabin crew, starting with a 72-hour stoppage next week, has the capacity to do severe damage both to the airline and to Mr Walsh's reputation as a cost-cutter who gets things done through consensus, as he showed at Aer Lingus.

Fortunately for him, the airline he runs has also changed markedly and for the better from the one that its management was grappling with back in 1997 - or indeed that which Sir Rod Eddington inherited in 2000 on Mr Ayling's demise.

Today, BA is a much leaner and more stable business. A combination of war, terrorism, disease and economic turbulence have forced it to be so. Financially, it is strong and will become more so once its pension funding proposals are in place. Operationally, it has removed a large amount of clutter and route overlap. Strategically, it is adapting to the competition posed by low-cost rivals and has jettisoned for now the grandiose ideas of world domination which distracted previous managements.

And yet BA still has an industrial relations problem which seems to operate on a two-year cycle. It flared up in 2003 during the so-called "clocking on" strike, it reared its head again in 2005 with the Gate Gourmet stoppage and now in 2007, a dispute over pay and sickness absence promises to cause travel chaos once more. BA thought it had bought off Bassa, the cabin crew branch of the Transport and General Workers, two years ago with a £1,000 payment to staff in return for a reduction in the number of sickies thrown. The deal appeared to be working (even though sickness absence among BA cabin crew is still 50 per cent above the national average). The catalyst for the renewed mood of militancy is BA's refusal to sanction a relaxation of its policy that could propel the rate of absence back up to where it was before - three times the national average. Pay scales also seem to be an aggravating factor although with cabin crew guaranteed a bigger starting salary than a qualified teacher it is hard to understand the union's grievance.

It is tempting to see the latest dispute as one last hurrah from BA's unions to show that they cannot be pushed around before the airline moves its Heathrow workforce en masse to Terminal 5 next year on new working arrangements. But the truth is that more than half the 6,000 staff affected have already agreed deals while the move to T5 will not affect cabin crew directly at all.

Mr Walsh owes it to the rest of the BA workforce and its passengers to stand firm in the face of a good deal of bellicose language from the T&G. But at the same time he needs to avoid appearing confrontational - hence yesterday's offer to call in the arbitration service Acas.

As for Bassa, it should wake up and smell the onboard tea and coffee. BA's terms and conditions, if not the best, are undoubtedly superior to those of most other airlines. The same could not be said with any certainty if it were ever to be taken over by private equity. If they want a taste of what life could be like then, BA's stewards and stewardesses should keep a watch on what happens at their partner airline Qantas.

Time to replace renewables levy

The Government's renewables obligation scheme has become a classic example of the law of unintended consequences. Devised originally as a simple and straightforward way of forcing more people to use green energy, it has turned into a profiteer's charter. No wonder so many energy companies are so keen to concrete over the countryside with wind farms provided they can get past the planning objections.

The obligation works like a subsidy (paid for by the end consumer) to make renewable energy competitive with other, cheaper forms of electricity such as coal and gas and hence encourage developers to bring forward projects. Unfortunately, it takes no account of rising wholesale electricity prices, which reduce the amount of subsidy needed, nor the price of carbon, which makes other dirty forms of fuel more expensive.

The result is that in the first three years of the scheme alone, consumers were overcharged by more than £700m and will continue to pay through the nose as the Government pursues its target of generating 20 per cent of the country's energy from renewable sources by 2020.

Not only is it an unnecessarily expensive way of powering the typical home. It is also an extremely costly way of tackling climate change. The typical coal-fired power station can pay anything between £12 and £70 to negate each tonne of carbon it produces. To achieve the same effect under the renewables obligation costs between £184 and £481 a tonne.

The Government has acknowledged that the cost of some types of renewable energy has fallen dramatically since the first wind turbines began to appear on the north Cornish coast. Offshore wind is still expensive but advances in turbine technology have slashed the cost of building onshore farms. To reflect this, it is proposing to band the level of subsidies in future according to the type of technology involved. It needs to go a good deal further and introduce some proper market mechanism which varies the cost of the obligation - and hence the burden on the consumer - according to what is happening to the prices of carbon and wholesale electricity.

A good starting point would be the proposals unveiled yesterday by the energy regulator Ofgem to auction long-term renewable energy contracts while linking the level of subsidy to wholesale electricity prices. This would guarantee developers a fixed return but prevent them from ripping off the consumer. As Tesco said last week, the key to green consumerism is to make it affordable. The argument applies as much to the annual energy bill as the weekly shop. It doesn't have to cost the earth to save the planet.

Scardino surely not ready for swansong

The timing could hardly be better. After ten years at the helm of Pearson, Dame Majorie Scardino celebrates her sixtieth birthday this Thursday by selling off the Financial Times and announcing her decision to step down. Unfortunately, things rarely go to pat like that, especially not in the strange old world of publishing. Someone else may yet attempt do the job for her, but why would Dame Majorie want to break up the business and say farewell just when all her hard work is beginning to pay off? There is a saying in journalism: ignore the facts, just stick to the story. A case in point?

m.harrison@independent.co.uk