How’s it going? Mr Saatchi Britain’s best-known advertising man asked breezily

“How’s it going?” Mr Saatchi, Britain’s best-known advertising man, asked breezily. Ms Laing, chairman of the London-based Saatchi & Saatchi agency, part of Maurice’s former ad empire, was blunt: “You know exactly how things are going.”

The comment is revealing, for it shows to what degree Ms Laing’s business has been conducted, however unwillingly, in the open: through the press, in gossip sessions around Soho, and even in the stacked pages of lawsuits flying between Mr Saatchi’s new agency and the firm that forced him out.
Ms Laing, forthright but with a quick smile and calming line in chat, has spent eight months in the top job at Saatchi & Saatchi, the UK agency that makes up just one part of giant Cordiant, the holding company founded and nurtured by Maurice and Charles Saatchi. (How the Chancellor must be racking his brains to think of a way of influencing the timing of that decision!)The Bank of England argued in its November Inflation Report that the impact of all this extra money on actual consumer spending may not be very large for several reasons. Households may already have anticipated some of the impact; they are unlikely to translate the whole of a one- off windfall into immediate expenditure; and many of the consumers receiving payments have high propensities to save anyway.Only to the extent that households are strapped for cash (“liquidity- constrained” in the economic jargon) should this monetary injection be expected to flow mainly into spending.All this may be true. Certainly, economic theory indicates that an increase in wealth, even if unexpected, should not be immediately and fully translated into extra spending. But if I were John Major, I would be quite eager to hang around for as long as possible, just in case these pots of money should have a dramatic effect on the mood of the electorate..

At one of the many pre-Christmas bashes for which the advertising industry is justly infamous, Jennifer Laing and Maurice Saatchi literally collided. It is hard to imagine that consumers will not feel better off as this money hits their pockets, though up to half of it would come after the election if the Halifax flotation comes after polling day. The experience of the much smaller pounds 1.8bn takeover of Cheltenham & Gloucester last year certainly suggests that consumer spending is boosted relative to disposable income when this sort of thing happens.Even without another penny of tax cuts in the 1996 Budget, and not counting a penny of the principal maturing in the Tessas, the sum total of these windfalls in the next 18 months is an absolutely staggering pounds 18bn – equivalent to more than 2 per cent of total consumption in the economy over the same period. This concerns the flotation of Halifax Building Society scheduled for the first half of next year. Rough estimates suggest Halifax could be capitalised in excess of pounds 9bn, all of which would be handed over in shares to individual members.Since many of these members have never had any intention of owning an equity investment in a financial services company (as opposed to holding an account in one), they will probably sell the shares immediately and spend some of the proceeds. According to recent surveys of investors, much if not all of this will be immediately ploughed back into new accounts, so there will be little effect on consumer spending.

But about pounds 3bn of interest payments will also become available, and a good part of this could easily find its way into spending. Finally, there is the “biggie”, the real consumer jackpot, a honey pot large enough to impress Winnie the Pooh himself. Further boosts to spending power will come from the takeover of the TSB by Lloyds Bank, and from the Abbey National takeover of National and Provincial Building Society, which together will put more than pounds 1.4bn into consumers’ pockets before mid-year.Then there are the maturing Tessas to consider. Principal investments worth about pounds 15bn will be unfrozen in the first quarter of 1996. But the Chancellor was perfectly well aware when he decided on his package that several extraneous factors would come to the consumer’s aid before the election.According to Messrs Walton and Brookes, personal income will be boosted by around pounds 1bn this spring when households in England and Wales receive a rebate of pounds 54.60 on their electricity bills following the recent flotation of the National Grid. So the growth of output may drop well below the growth of demand for quite a while.

However, provided that the consumer remains reasonably robust, any setback to production, even if quite sharp, will not last very long. And prospects for the consumer are, if anything, improving because of that series of windfalls mentioned earlier.Tax cuts are not the main factor here. The Budget last November was generally seen by the Tories as a disappointment, since it added only about pounds 3.5bn to purchasing power in the coming fiscal year. Even if final demand remains quite strong, output may stagnate as companies supply the consumer off the shelves, instead of from new production. Furthermore, new car registrations by individual purchasers – not included in retail sales – rose by around 6 per cent during 1995. And new mortgage commitments are on the rise again, as are house prices.None of this rules out a few depressed quarters for output in the UK, since the problem of excess stockbuilding has still to be overcome, both here and in Continental Europe. In other words, while the official data was suggesting that retail sales had grown by only 0.7 per cent in the course of last year, the underlying figure may have been over 2.5 per cent.