The business column - Patrick Hosking

Ministers insist new nuclear power stations would not require public subsidy, but the private sector

Gordon Brown didn't get quite the reaction he'd hoped for when he scrapped plans to force listed companies to publish operating and financial reviews (OFRs). The U-turn was billed as a pro-business move, cutting the burden on companies, slashing red tape, and so on. Sure enough, the Confederation of British Industry dutifully applauded the Chancellor's decision, which was deftly leaked to coincide with its annual conference. But business is not just the CBI, and a backlash has come from many other parts of the business community. Investors, accountants and even the companies themselves are not all happy.

Partly this was due to the manner of Brown's abrupt change of heart. Over several years, officials had built a sensible consensus on OFRs. Many of the more onerous aspects had already been dropped. What remained was regarded as useful, affordable and doable, with everyone from the Association of British Insurers to the National Association of Pension Funds and the Financial Reporting Council signed up. Even the CBI seemed happy at the time. After all that consultation, Brown's on-the-hoof policy-dumping looked like a cheap gesture designed to win easy brownie points. Even his claim that it would save business £33m was suspect, as the Department of Trade and Industry had previously estimated the cost to business at between £6.5 and £19m.

A lot of the preparatory work has been done. Most blue chips have produced dummy OFRs in readiness for next April, when the new regime was due to start. Moreover, most investors believe OFRs could have added to their understanding of companies. Financial accounts have become so opaque, so prone to manipulation. Some investors nowadays look only at the cash-flow statement - the one bit of the accounts that can't be polished up: either you have the cash or you don't. OFRs would have contained a statement of the company's position and prospects, and assessment of the risks it might face.

Naturally, there was a danger that management would fill the OFRs with flannel, fearful that any specific plans and targets could be used as the basis of investor litigation if things went wrong. But they were worth a try. For the sake of a ten-second soundbite, Brown has scored an own-goal.

Not before time, the government has agreed to inject some independence into the gathering and presentation of its statistics. The impartiality of the Office for National Statistics has been called into question because of its tendency to crunch and categorise numbers in a way seen as favourable to ministers. For example, the £20bn of borrowing by Network Rail has been kept off the public sector books. Voters, business people and journalists distrust official statistics. Only 17 per cent think that official data is produced without political interference, according to a recent survey by the ONS itself. But now, Gordon Brown has announced, legislation will be introduced making the ONS a wholly separate body, at arm's length from the government and fully independent of it. Currently it reports to the Financial Secretary at the Treasury.

As the nuclear power debate surfaces once more, the ONS needs to be on its toes. Ministers are already insisting that a new generation of nuclear power stations would not require subsidy from the taxpayer. There are ways of making the stations financially viable - by forcing power distributors to buy a proportion of their needs from nukes, say, or introducing a carbon tax. But the upfront costs are large. Each station would cost £1.7bn or more, and ten are being mooted. The lead times are lengthy - ten years at least.

There is no way the private sector will bankroll this long-term investment without guarantees of some kind from the government. It would be a great test of the freshly liberated ONS whether those potential liabilities appear on the balance sheet.

There is a trend in full swing that has barely been noted by the people it ultimately affects. Occupational pension funds are piling into hedge funds. No fewer than one in five of Britain's larger pension funds has now started allocating money to hedge funds, according to unpublished figures from the National Association of Pension Funds.

Now, this may or may not be a good thing. Hedge funds can spread risk and the good ones can boost investment returns. On the other hand, they are expensive, unregulated and prone to the occasional fraudster. Moreover, the strong returns of the past are probably unsustainable. Many investors are going to be disappointed.

But the lack of disclosure is unsettling. Apparently scores of pension funds are investing, typically placing 5 per cent of their assets with hedge funds. Yet I know of only a handful to have admitted as much. One is BT; another is Railpen, the railway workers' scheme. Pension-fund members and the shareholders of sponsoring companies should be told.

Patrick Hosking is investment editor of the Times

This article first appeared in the 05 December 2005 issue of the New Statesman, The next holocaust