Darling Says Wrong To Block Foreign Investment

Britain will not stand in the way of foreign state-owned funds buying companies as long as they play by the rules.

Britain will not stand in the way of foreign state-owned funds buying companies as long as they play by the rules, new finance minister Alistair Darling said on Wednesday.

His comments came just days after British bank Barclays raised its bid for Dutch Group ABN Amro helped by massive investments by China and Singapore and as a debate in Europe over so-called sovereign funds is heating up.

Hackles have even been raised in European capitals in the last few weeks over the possibility of Chinese, Middle Eastern and Russian state-controlled funds controlling $2 trillion going on a shopping spree for Western companies.

But in his first speech since becoming Chancellor of the Exchequer a month ago, Darling rejected any notion of economic patriotism and said Britain was open for business -- even as a Qatari fund is bidding for supermarket chain J Sainsbury.

"It would be wrong for any government to say in respect to any particular investment proposal, for example ...the Chinese Development Bank and Barclays, for the government to step in and say you can't do this," Darling said.

"(But) they have to realise in the long term it's not sustainable unless it's a two-way process," he told a gathering in London.

But that is not the view everywhere else in Europe.

On Saturday, Peter Mandelson, the European Union's top trade official, said the bloc had to strike a balance between maintaining free movement of capital and protecting itself from such huge flows of foreign government money.

Both French President Nicolas Sarkozy and German Chancellor Angela Merkel have also expressed their fears in the wake of Chinese money buying a 10 percent stake in private equity firm Blackstone Group which in turn partly owns Deutsche Telekom.

Darling said all investors had to operate by all of the rules of the market in which they participate and he therefore was looking forward to an International Monetary Fund study due out soon.

"Openness should be a commitment by all. Free trade should be just that," he said.

GREEN LIGHT FOR RATE HIKE?

Darling also pledged continuity in economic policy after 10 years of Gordon Brown, now prime minister, at the Treasury.

Public pay will be kept in line with the inflation target, he said, and the government will support any Bank of England decisions to keep prices in check, he said.

"My first priority as Chancellor is to stick to stability now, and in the future. So I will support the Bank of England in the decisions they take to meet the inflation target," he said.

The BoE has already raised interest rates five times in the last year to a six-year high of 5.75 percent to combat inflation and Darling's comments may be interpreted as the government giving the green light to further tightening.

On the tax system, the new finance minister said his predecessor, Brown, had already announced cuts in the main corporation tax rate in his last budget before leaving the Treasury to become prime minister.

The pre-budget report, which will be published alongside the three-year spending review in October, was the place to address any changes to the tax treatment of private equity firms, he said.

"I've made it absolutely clear that we need to be vigilant in relation to the tax system to make sure that there are not abuses, that if there are unfair loopholes ... that we need to deal with that. The time to do that is within the context of the Pre-Budget Report or the Budget itself."