The business column - Patrick Hosking advises us not to save too much

A gradual increase in savings would be desirable. A big leap would be disastrous: the fall in consum

When Guinness took over the Scotch whisky producer Distillers 19 years ago, it promised to relocate its headquarters to Edinburgh to mollify the bruised Scots, and then promptly reneged on its pledge. The betrayal was quickly forgotten amid the shock of the infamous share support scandal that blew up soon after.

I was reminded of the saga as Boots - for decades the jewel in the crown of the Nottingham economy and one of the few Footsie companies based outside London - announced plans for a £7bn merger with the chemist chain and wholesaler Alliance UniChem. The combined business, Alliance Boots, will create a new HQ in London, though "a substantial operating presence will be maintained in Nottingham", it says.

There is little doubt the centre of gravity will shift south if the deal is consummated. And that's no certainty: Boots is seen to have hoisted the white flag and could now attract a rival bid from a private equity house, say. The deal could also be blocked on competition grounds.

But the hit to Nottingham is no concern to shareholders. There is little enthusiasm for the deal, but the relocation of the top brass is almost the only aspect the City is relaxed about. Some shareholders believe it is the civil service culture of a company ensconced on its 300-acre "campus" 100 miles away from the capital which has stifled innovation, blunted the hunger for commercial success and prevented it taking tough decisions.

Most attempts to diversify have ended in failure. Every overseas venture has flopped. Meanwhile, the core business, the Boots the Chemist chain, while still a money-making machine, was and still is struggling against the supermarkets. One of Sir Terry Leahy's favourite boasts is that Tesco sells more health and beauty products than Boots now.

Though billed as a merger of equals, the deal is more of a takeover by Alliance UniChem. Its boss, the Italian entrepreneur Stefano Pessina, will own 15 per cent of the enlarged group and decide most of the boardroom positions. Pessina's goal is an aggressive expansion plan across Europe.

Boots has already slimmed down dramatically in Nottingham. Since its chief executive, Richard Baker, arrived in 2003, head-office numbers have been slashed from 3,500 to 1,200. The total workforce on the Nottingham campus is down to around 7,000 and is destined to shrink still further.

But this is not just about numbers. Having a blue chip operating in town gave the city commercial pride, helped support local professional services and spawned a big-spending middle class. Every other resident in the affluent suburb of West Bridgford used to be a Boots executive. Today the place is full of ex-Boots executives trying unsuccessfully to sell their homes.

Ed Balls is the overwhelming favourite to succeed Gordon Brown as Chancellor of the Exchequer. The City bookie Cantor Index is quoting him as "evens" to walk into 11 Downing Street, with Alistair Darling trailing at 7-2, John Reid at 6-1 and David Blunkett at 4-1.

Balls, former chief economic adviser to the Treasury and Brown's chief lieutenant for seven years, recently put his finger on the nub of the economic difficulty that he and the country may soon face. Acknowledging to the BBC's Panorama, broadcast last month, that savings were very low by historic standards, he portrayed this as a reflection of Brown's success. Why save when there is no threat of inflation or unemployment? But he added: "What we need to avoid is the kind of jarring swing from a very low savings ratio to a very high one."

The savings ratio is the proportion of total household resources that people save. A modest and gradual increase would be desirable. A big leap would be disastrous: the inevitable fall in consumer spending would tip the economy into a severe recession. We already know from the squeals of retailers that spending is slowing. A couple of straws in the wind suggest saving is suddenly in vogue, too. The Investment Management Association has just reported a spectacular boom in net sales of unit trusts and other investment products - from a lowly £68m in August 2004 to £815m in August 2005.

National Savings & Investments has just announced it sold an almost unprecedented £1.1bn worth of Premium Bonds and other savings products in August alone: 630,000 people - equivalent to the population of Cardiff and Coventry combined - flocked to buy an NS&I savings product in the space of a month.

This was partly due to the advertising blitz starring Sir Alan Sugar and the dangling of more million-pound prizes, but I suspect there may be something more structural going on, too. These are only one month's figures. But they are more up to date than government figures and they do suggest a quite sharp shift in consumer sentiment. That "jarring swing" may be just what the putative new chancellor gets.

Patrick Hosking is investment editor of the Times

This article first appeared in the 10 October 2005 issue of the New Statesman, A very corporate loss of nerve