Outlook: Great Expectations as runway plans get airborne

Kitchen sinking; Broughton candour Â

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Client exodus hurts Schroders as it suffers its first loss in 43 years

Stephen Byers has not so much flown a kite as dropped a bombshell with the revelation that he may sanction the building of a new airport with four runways on the Kent marshes. The fact that the South-east needs more runway capacity is beyond doubt. In the next 20 years, air traffic is forecast to double and without more runways London will inevitably begin to wither as a centre for international commerce and investment, as businesses vote with their feet and their club class accounts for the attractions of Paris, Amsterdam and Frankfurt.

But the decision about where to put that extra capacity is one of the trickiest that the Secretary of State for Transport has to take. In addition to the obvious choices of Heathrow, Gatwick and Stansted he has now added a fourth option – a brand new airport next to the tranquil village of Cliffe, the setting for part of Charles Dickens's Great Expectations and home to one of Europe's most important wildlife estuaries.

Before the residents of Rochester and Gravesend start rioting in the streets and wading birds begin deserting the Thames, it is as well to remember the example of Maplin Sands. This was the revolutionary floating airport that the Heath government wanted to build on reclaimed land on the north shore of the Thames in the early Seventies. It was blown out of the water by the first oil crisis before the developers could start work, which is perhaps as well since the plan would have cost £5bn even in the money of the day for an airport which had no obvious commercial attractions.

So began the inexorable expansion of London's three other airports. Heathrow is to get its fifth terminal at last, Stansted is seeking permission to raise passenger numbers to 25 million and Gatwick is bursting at the seams even without British Airways. A case for extra runway capacity could be made out for each airport even though the T5 inspector explicitly ruled out a third runway at Heathrow and previous governments have undertaken not to build additional runways at Gatwick and Stansted.

Heathrow, with its paltry two runways, compared with four at Charles de Gaulle, would be the obvious choice but is probably politically unobtainable. That makes Stansted the favourite unless, of course, Mr Byers shows real courage and vision and backs the Cliffe option. Alas, Great Expectations are not something this Transport Secretary inspires.

Kitchen sinking

It is the privilege of incoming chief executives that they are allowed to make the figures look bad in their maiden set of results, so as to establish a new low point from which the rebuilding exercise can begin. But whether it was entirely necessary for Michael Dobson, the new chief executive at Schroders, to record the company's worst performance since its flotation in 1959 is another matter. Just about everything bar the kitchen sink seems to have been thrown into the mix in ensuring the City fund management group recorded its first ever loss last year.

That said, there's no denying that it truly was an annus horribulus for Schroders, marked by client defections, plunging share prices, key personnel losses and then, to cap it all, the admission that past profits had been overstated because of accounting errors. It shouldn't be difficult for Mr Dobson to better that performance and, in any case, he has joined the company just as its "value" orientated approach to investment is starting to come back into its own. A bit like Phillips & Drew, Schroders was suspicious of the New Economy boom and, as a consequence, missed out on it, but what goes round comes round and Schroders is now reaping the benefits with several of its funds close to the top of the league tables.

Even so, the cost cuts announced yesterday won't of themselves guarantee a prosperous future. Institutional fund management, which is what Schroders specialises in, is going through big changes. The fee structures are changing, the business is becoming more international and, perhaps most important of all, there's a big switch in asset allocation beginning to kick in from equities to bonds. Schroders is 75 per cent invested in equities, is heavily UK orientated and is comparatively weak in bonds.

The suspicion remains that Mr Dobson's primary task as chief game keeper, for don't forget that this is still a family-controlled company, is simply to dress it up for sale.

Broughton candour

Shock, horror, hold the front page (as indeed, one of our rivals did yesterday). Martin Broughton, chairman of BAT Industries, thinks smoking can damage your health. He would advise his children not to smoke and believes that people in general are better off without it. All these things are statements of the blindingly obvious and the medically proven, but if the chairman of one of the world's largest tobacco companies is candid enough to say so, then it's news. This is not, however, another Gerald Ratner, who famously described one of his products as "total crap", since Mr Broughton wasn't referring to Rothmans, Lucky Strike or any of his other brands, but to tobacco in general. Nor was he saying anything the tobacco industry hasn't publicly accepted for some years now. Smoking kills and, in the affluent West at least, no one in their right mind would encourage their children to take up the habit.

More debatable is whether companies such as BAT actively promote under-age smoking in developing and Third World countries. For the record, BAT claims it is not in the business of recruiting new smokers. Rather, marketing spend is aimed at persuading existing or potential smokers to buy BAT brands in preference to anyone else's.

Well may be, but whatever the truth, selling a product that even your most senior executive wouldn't touch with a barge pole because of the damage it might do to his health is plainly an odd sort of business to be in. If there is a moral justification it is that people would find a way of smoking even if companies such as BAT didn't exist. It is probably better that BAT and other legitimate corporations continue to control the trade than that it should be driven underground.

The British government's attitude to smoking has always been ambivalent. As a public health risk, the government is obliged to discourage it but at the same time the amount raised from the tobacco industry in excise duty and VAT far outweighs the cost of treating smoking-related illnesses. There's also the argument that the industry dares not promote, but is none the less true. By killing people off in their prime, smoking benefits the wider economy, which will already have enjoyed the most productive period of the smoker's working life but avoids having to support him in the twilight of his unproductive years as a pensioner.

The anti-smoking lobby leapt on Mr Broughton's comments yesterday as if Slobodan Milosevic had suddenly changed tack and admitted his guilt. But the fact of the matter is that Mr Broughton has said no more than he should have done. Nor are his comments going to make a blind bit of difference. Those who wish to smoke will smoke.

j.warner@independent.co.uk