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The Times they are a-changin
Harold Wilson memorably said “a week is a long time in politics”, but a month is even longer. Following the disaster of the MPs’ allowance scandal, it looked as if things could not get any worse for Gordon Brown and the Labour party. But indeed they could, as a disaffected electorate took to the ballot boxes in the regional and European Parliament elections.
Ironically, following a weekend that saw President Obama join European heads of state to commemorate the 65th anniversary of the D Day landings and the bravery of the allies who defended democracy in Europe, UKIP and the BNP appeared to be the main beneficiaries in the European elections. The TUC expressed the widespread dismay that was felt at the election of two BNP MEPs from the UK. In fact there was a widespread shift to the right throughout a recession-torn Europe. This is not so surprising with the news that the unemployment rate in the Eurozone rose to 9.2% from 8.9% in March, the highest rate for 10 years, with Spain still topping the charts at 18.1%.
Back home, a much weakened Gordon Brown faced mass defections by his cabinet ministers (predominantly the female ones). But ably assisted by that “super subtle Venetian” Mandelson, he seems to be holding on to both his job and the new cabinet, at least for the time being.
Recovery, what recovery?
Meanwhile news on the economy has not been all bad. Yes, the pound has a hit a new low against the euro, with parity now seeming inevitable. However, when one compares the UK’s 2.2% unemployment rate with that of the unfortunate Spain our problems appear as a relative fleabite.
The Organisation for Economic Co-operation and Development (OECD) says that the global recession is slowing. The composite leading indicators (CLI) for the 30 OECD countries rose by 0.5 in April, which is still 8.3 points lower than in April 2008. House prices in the UK also rose. Halifax figures showed a 2.6% rise in May compared to April, while the Nationwide reported a 1.2% increase in May. This is the second rise in three months and the biggest monthly increase since October 2002.
The Bank of England reported that the number of new mortgages approved for home buyers in the UK had gone up in April for the third month in a row. The Times also believes the housing market is stabilising, and reports a 1.1% increase for April based on figures from the Department for Communities and Local Government.
Consumer confidence in the UK undoubtedly seems to be growing but the biggest surprise came from the figures published by the Office for National Statistics. They revealed that industrial output rose unexpectedly by 0.3% from the previous month, the first month on month climb since February 2008. Recovery by its very nature is bound to be patchy, with some sectors worse hit than others. UK new car sales were 24.8% lower in May than for the same month last year, and it is not clear yet what impact, if any, the car scrappage incentive scheme will have.
In the States, General Motors (GM) filed for bankruptcy protection. This is the biggest failure in US history and it caused consternation at Vauxhall plants. Chrysler, who also filed for Chapter 11 protection on April 30, now seems to have secured its future with a deal with Fiat. Its good assets are now in a new company controlled by Sergio Marchionne, Fiat’s chief executive. Fiat will not pay for its 20% share. Instead it will contribute its expertise in making smaller Chryslers. The Obama government does not escape criticism on its decision to override US bankruptcy laws, and faces questioning by Congress, according to the Times.
The two biggest stumbling blocks to recovery remain increases in unemployment and the banks’ preparedness to lend to business. Lloyds Banking Group’s decision to close all of its 164 Cheltenham and Gloucester (C&G) branches with the loss of 833 full time jobs has implications for both and has caused outrage. Unite describes the decision to abandon local bank branches (on top of the 3,000 other job losses since the Lloyds’s merger with Halifax Bank of Scotland (HBOS) in January) “disgraceful”, while the Mail warns it may only be the “tip of the iceberg”. The Telegraph says Lloyds also plans to repay £2.3m of the government bailout money much sooner than expected.
The Times reported on 10 June that the Treasury is examining the feasibility of reselling the notorious Northern Rock back to the City in September. The US is following suit and 10 of its largest banks will be allowed to repay $68b of government bailout money. No doubt this is good news for the government facing flagging polls, not to mention for the taxpayer. It does nothing for the confidence of businesses. They fear that the banks’ eagerness to rid themselves of government debt has everything to do with losing restrictions on pay and reward rather than a willingness to fulfil their primary function of lending money.
Disturbingly the Times again reports that four City investment banks have charged the Treasury at least £9m in fees for advising the Government on how to stop the financial system from imploding. Lord Oakeshott, the Liberal Democrat spokesman on Treasury work and pensions and formally Special Adviser to Roy Jenkins, said: “Taxpayers are paying through the nose for Treasury officials’ ignorance of how the City works. From my experience of dealing with them on the nationalisation of Northern Rock, it’s matched only by the arrogance.”
The British Bankers’ Association (BBA) claims that lending to small businesses rose by £287m in April compared to £271m in March, and that the high street banks’ support for the small business sector continues to rise. However, Paul Tucker, deputy head of the Bank of England and member of the Monetary Policy Committee in charge of financial stability, is not convinced. In a speech to the Association of British Insurers’ (ABI) Conference Mr Tucker warned that banks should not hoard cash in anticipation until they are sure the worst of the recession is over.
At the same conference Lord Turner, chairman of the Financial Services Authority (FSA) and architect of the Turner Review, called for a pan-European regulator to supervise the national watchdogs who would remain independent. Although Lord Turner insisted there would be no return to “light touch regulation”, widespread concerns about pay and reward persist.
Once again the role of remuneration committees is attracting critical attention. At Royal Dutch Shell 60% of shareholders voted against plans to award discretionary bonuses to executives who had missed performance targets. Chief Executive Jeroen van der Veer was the focus of the shareholders’ revolt. He received a £1.16m long-term incentive bonus and remains on Shell’s board as an executive director. He told the Financial Times: “You have to realise if I have been paid 50% more I would not have done it better. If I had been paid 50% less then I would not have done it worse.”
This is no doubt irrefutable, but the ABI were not impressed and it is understood they will be pressing for non-executive directors to be re-elected every year. Marc Jobling, ABI’s assistant director of investment affairs told Lucy Phillips of People Management: “One of the problems is they can make a decision that shareholders don’t like but are still in place for another three years. We are looking at how to improve the accountability of directors to shareholders.”
Apprenticeships and skills shortage
Sir Alan Sugar, entrepreneur, founder of Amstrad, former chairman of Tottenham Hotspur and creator of the long-running television reality show The Apprentice which regularly attracts audiences of 9.8m, has always courted controversy, enthusiastically enjoying his reputation as politically incorrect bully.
Gordon Brown’s unexpected decision to appoint him “enterprise Tsar”, unpaid adviser to Lord Mandelson to assist small businesses, has kicked up a media storm which must have surprised even the prime minister. It did not faze Sir Alan, who proceeded to put up a consummate performance defending the decision on the Andy Marr Show. This left even the experienced political interviewer floundering.
The Conservative party were furious, fearing that his role could be compromised if the new series due to be screened next March clashed with a General Election. Conservative culture spokesman Jeremy Hunt wrote to Mark Thompson, BBC director general, to protest saying: “We are very, very concerned about the potential conflict of interest”. Replying on BBC Radio 4’s World at One BBC editorial policy chief David Jordan said: “What we are absolutely determined to make sure that the BBC’s impartiality is sacrosanct”. He pointed out that both Lord Bragg and Lord Lloyd Webber presented BBC shows.
Some critics have likened Sir Alan’s appointment to Barack Obama putting Donald Trump in his cabinet (Trump started the forerunner of the Apprentice in the States). The more serious Personnel Today claimed a little pompously that Sir Alan had little respect for human resources. We believe the reality is a little different. In his own defence Sir Alan said: “It is my long-held belief that we should be doing more to promote enterprise among young people, as the future of our economy relies on them", and so say all of us.
A series of articles in People Management magazine report that there is an unprecedented take up of government-funded training schemes such as Train to Gain, so much so that their future is jeopardised by lack of funding. Purely from our own observation it is middle management rather than the young who have been the main casualties of the recession.
Employers seem to have learned lessons from past recessions and acknowledge the damage caused by not recruiting new talent. The preferred option this time is cutting back on middle management with their pensions and higher salaries. Certainly this is a more instantly effective way to improve the balance sheet, even though it is likely to create a severe training deficit once times improve. Through the enormous popularity of the Apprentice Sir Alan has changed perceptions of that dry old word and turned it into something more relevant to the lives of young people. He has managed to make training seem desirable, even sexy, and has changed the aspirations of a generation. Long may it continue.
