“The system looked ideal five years ago but we decided that if we were to be ready for 1998 and be a major player in the competitive market then it would be better to invest in our existing mainframe system.”An IBM spokesman told the magazine Utility Week that Midlands had abandoned the system “in light of developments in the marketplace. But it declined to say how much extra investment this would entail.The decision will not result in any job losses at Midlands, where about a dozen staff were involved on the project. Total nationwide costs are put at pounds 850m by the industry and pounds 500m by Offer.The company has decided that it will develop its existing mainframe computer system to handle the transition to competitive markets. Midlands is the third electricity company to ditch the IBM system. A year ago South Wales Electricity and South Western Electricity abandoned their system which was being developed through a joint venture called CROESO. Swalec made a pounds 30m charge to cover the cost of withdrawing.
A Midlands spokeswoman said that far from delaying the launch of competition in the region, the decision to scrap the IBM Customer Services System would enable it to meet the deadlines it has agreed with the industry regulator Offer.She declined to say how much the system had cost to develop or how much Midlands would have to write off. But the company estimated in May that the cost of getting its computer systems ready for the deregulated market would be pounds 67.45m.

But the system, costing tens of millions of pounds, was abandoned last week after Midlands decided that it would not be ready in time for the deregulation of the electricity market next April when 22 million households, including its 2 million domestic customers, will be able to start shopping around for suppliers. Work began installing the IBM system at Midlands’ Birmingham headquarters five years ago and at one point 160 contractors were working on the project. Even so, the argument still applies: if shareholders are going to grab a slice of the cake where does that leave the legitimate interests of policyholders? The orphan asset issue seems as good a reason as any for shopping with a mutual every time.. If a way is then found to unlock surpluses in the fund, as happened with Scottish Amicable in its takeover by Prudential, the assets are theirs.In some cases it is more complicated than this, because, as with L&G and, Britannic argues, itself, the surplus identified has come not just from better investment returns from with-profits business, but also from shareholders’ capital in the life fund. Members of a mutual insurer can say that all the money in their life fund belongs to them. This immediately raises a potential conflict of interest between his duties to shareholders as opposed to policyholders.Second, the surpluses have often built up because of a conservative distribution policy by the company, whereby the bonuses it pays out to policyholders are modest by comparison to the investment gains being made by the fund.

But the Midlands spokeswoman said the decision to abandon the IBM system was taken by it, not the parent company.British Gas has also run into problems with its Tariff Gas Billing System which have resulted in it having to spend pounds 120m to get the system ready for domestic gas competition. And what’s wrong with that given that it is shareholders’ capital which has contributed to the success of the life fund?
There are several potential problem areas here. Although the surpluses distributed in this way have to be negotiated with and approved by the Department of Trade and Industry, as often as not the chief actuary who makes the calculation of what the fund can afford is also a senior employee of the company In Britannic’s case, the chief executive, in fact. Bonanza time at Britannic, if you are a shareholder, that is.

The company yesterday gave details of how much shareholders stand to gain from the distribution of its “orphan assets”, surpluses that have built up over decades in many insurers’ long-term life funds. And now here we are basking in the glow of an economic assessment that paints us in a more favourable light than Germany and Japan But let’s not get too carried away here. There’s one country that gets an even better write-up than us – the United States of America Surprise, surprise.. Certainly the humiliation of the sterling crisis of 1976 helped undermine the credibility of the Labour administration and pave the way for the economic reforms of the 1980s. By contrast, other previously much more successful economies seem stuck in a bygone age. Modernise or die, the IMF shouts, Tony Blair-like, and though most of the rest of Europe still rather regards America’s attempts to sell its ways as tantamount to the export of toxic waste, it gets an increasingly receptive hearing.

Its real purpose is essentially that of foisting the American model and way of doing things on the rest of the world, which it does with considerable success in time-honoured way – extracting root and branch reform out of the despair of economic crisis.
It is hardly surprising, therefore, that the IMF should see in Britain the blue-eyed boy of Europe. Had we too chosen not to respect the embargo on publication, we probably would have done the same thing. The point ought to be made, however, that the IMF is hardly an unbiased observer of these things. The International Monetary Fund is not, as might reasonably be supposed, just some kind of worldwide benevolent fund always willing to lend a hand to those countries that get themselves into difficulties.