The business - Patrick Hosking hopes for a housing crash-ette

W H Smith's pension fund is, like just about everyone else's, in the red. But the trustees are eager

Among the competing forces that direct the fortunes of any listed company, it's not often the pension-fund trustees who end up calling the shots. The management, often; the shareholders, sometimes; even the employees, customers and suppliers, occasionally. But the trustees? Rarely.

So it is intriguing to see the bicep-flexing of the trustees of the old W H Smith pension fund as the newsagent chain faces a possible £940m takeover bid from the private equity group Permira.

The trustees, led by Martin Taylor, are insisting that Permira fill in the £250m hole in the staff pension fund if it makes a bid. Such an intervention is unprecedented in a bid of this size.

Taylor, a brainy former Financial Times columnist who rose to be chief executive of Barclays Bank, says he cannot block the bid. But he can certainly make the cost to Permira very much greater - so great, indeed, that Permira may walk away.

He is determined that the 30,000 members of an old scheme run by the fund should not be any worse off should Permira's bid succeed.

The problem for Permira is leverage. It wants to load Smith up with more than half a billion pounds of debt. This would vastly increase its ability to sell out at a big profit if it succeeds in turning the struggling retailer around.

But it also increases the odds of Smith going bust if it fails. And Taylor wants to make sure that, if it were to go bust, the pension fund is fully flush at the time. Or, at the very least, that it ranks equally with the banks in any winding up.

The fund is deeply in the red, like just about every final-salary scheme in the country. It owns assets of £600m. It faces potential liabilities of £850m or so. Lower share-market returns and soaring longevity have done the damage.

The problem is exacerbated because the value of Smith itself is not much bigger than the value of the fund. It does not quite merit the old City joke that it's a big investment trust with a small bookshop chain on the side, but it's not far off.

The irony is that most of Smith's staff will gain nothing from Taylor's stand. The fund was closed to new entrants nine years ago. Most employees have to make do with a new, inferior scheme that guarantees nothing. Just 4,000 of the 25,000 current employees are in the old scheme.

But the trustees are right to protect the interests of the fund members. They were made promises that should be kept. As the growing army of deep-pocketed private equity groups scours the stock market for bid targets, we can expect more such stand-offs.

The surprise - given that private equity groups have snapped up a vast chunk of the British economy over the past few years, and given that virtually every conventional final-salary scheme is in deficit - is that the issue hasn't come up before, at least not publicly.

It may be that the Smith fund's trust deed is written more robustly than most, giving the trustees more clout. It may also be that trustees are far more aware of their obligations than in the past.

It may also help that the chairman of the trustees is - unusually - not an officer of the company. Doubtless, Taylor would have made his stand even had he still been chairman of the company as well (he left last year). But he would have been horribly torn, trying to wrest the best deal for shareholders and best result for fund members.

Not for the first time, it illustrates the awkward conflicts of interest faced by company-nominated pension-fund trustees.

The completely sensible and incontestable warning from the Bank of England governor, Mervyn King, that house prices could fall has produced the usual howls from the estate agency and mortgage lobby.

The more interesting question, however,

is whether a modest fall in prices might not actually be a good thing. The received wisdom is that house-price inflation should ideally drop to zero but no further. Then we wait a while - three years, five years, ten years? - for wages to catch up.

But could a quick reversal be better? It would certainly be preferred by the thousands of would-be homeowners currently priced out of the market. It would help redirect capital to more productive sectors of the economy, just as the dotcom bust did.

It would punish some of the more irresponsible lenders and give the more recklessly borrowed buy-to-let landlords pause for thought.

It might even be better for economic growth. A very long period of completely stagnant house prices could perhaps be more damaging to consumer confidence and economic growth than a short, sharp shock followed by a gentle recovery.

It is taboo to say so, but with unemployment low - and therefore little danger of widespread repossessions - there could hardly be a better time for a nice little housing crash-ette.