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Introduction
Despite widespread disappointment in Alastair Darling’s budget forecasts last month, with expectations for recovery further reduced by the Treasury Select Committee Report on the banking crisis, the prevailing mood in the economy would appear to be one of cautious optimism. Stock markets rose with the welcome news that some banks have started to lend again, and Ben Bernanke, the Federal Reserve chairman, predicted the US would pull out of recession by the end of the year. In the real economy, however, life is rather different with news of soaring unemployment and small business failures as the recession begins to bite. The Bank of England quarterly inflation report also adopts a more cautious approach in estimating the timing of recovery.
Unemployment and beating the recession Internet abuse and a very special civil servant Graduate training The median annual training spend on each employee is £220 (down from £300 in 2008). 70% still saw training as a high priority. 48% of employers are making more use of line manager coaching.
According to government statistics the unemployment rate is now at 6.7% with 2.10 million unemployed, an increase of 177,000 over the last quarter and the highest rate since 1997. Taken in a global context, figures appear less alarming, with rates much higher elsewhere. The Wall St Journal, for example, reveals some states in America exceed 10%, with California the highest at 11.7%, the highest level on record since 1941. In Spain, where unemployment has almost doubled in a year to 17.4%, there are more than 4 million out of work. The Bank of Spain had previously forecast that unemployment would not surpass 17.1% for the year. Alarmingly for social unrest 1,068,400 families have every member out of work.
Here in the UK, as the retail price index figure reaches zero (pushed down by low mortgage repayments), pay freezes are likely to be the norm and the spectre of deflation is ready to spook all those who dream of recovery. In fact the British Chambers of Commerce Monthly Business Survey conducted between 23 March and 6 April shows that 58% of the 400 firms asked plan to freeze salaries, with 12% planning to make cuts, and 50% planning or certain to make redundancies in the next six months. Somewhat surprisingly the same survey indicated that although more than half of businesses consulted held the banks responsible for the current economic position and 37% the government, only 6% considered the regulators responsible and blamed the FSA. This may have been because it took place before the damming Treasury Select Committee report on the banking crisis which dismissed the Chancellor’s forecasts of recovery and blamed bankers for the “astonishing mess” made of the financial system. The MPs also found it “deplorable” that despite the banks being propped up by billions of taxpayers’ money they were still not extending new loans to their customers. Vince Cable, the Liberal Democrat Treasury spokesman, was unimpressed, describing the report as “disappointingly weak” and that “it failed to meet the previous standards of tough criticism advanced by the select committee when interrogating the bankers”.
One of the offending banks, Royal Bank of Scotland (RBS), announced a pre-tax loss of £44m for the three months to the end of March compared with a £479m profit for the same period last year. The share price rose 9% at this better-than-predicted result. Robert Peston, BBC business editor, described it as a “Jekyll-and-Hyde tale of very good and appallingly bad”.
Reassuringly perhaps we learnt that just across the Channel our nearest neighbour France has its own financial scandals and scapegoats. Leading the way for media hate is Daniel Bouton, until recently chairman and chief executive of the French bank Société Générale. This is the institution which last year lost nearly €5m in rogue trading by its then employee Jerome Kerviel - one of the financial world’s biggest scandals until the arrival of Bernard Madoff this year.
Monsieur Bouton, also know as Dany the Ill-loved, had offered to resign after the incident, but stayed on, albeit without pay for six months.. But then, if you are the second highest paid boss in France (his salary increased by 25% in 2006 to €1.25 million p.a.) one assumes he could afford it. He could also look forward to a very generous bonus in 2009, until the French government convinced top bankers to turn them down this year. As for generous stock options, pressure from the government forced him and other top ranking banking executives also to turn them down. The mistake Dany made was to wait two days before refusing his, thus inflaming an already heated public opinion.
Dany is leaving a banking group which has reported a €278m loss for the first quarter of 2008. But not to worry, he can look forward to an annual pension of just under €1m, the life title of Honorary Chairman of the Société Générale, a car, chauffeur, secretary and office. There is also a rumour that his expenses will be paid…
Meanwhile statistics from the Insolvency Service demonstrate company insolvencies are soaring, rising to 4,941 in the first quarter of the year. This represents an increase of 7.1% on the last quarter, with construction and manufacturing the worst hit with a 50% and 23% rise respectively. Sadly, as is characteristic of recession, fraud is also on the increase with a 31% rise in the number of directors banned for fraud and a significant 72% increase in the number of directors disqualified in insolvent companies where directors have been implicated in financial crimes. The irony is that however galling it may seem in the light of the excesses reported during the crisis, the banks must be given the opportunity once again to make profits and large profits, so that they can start lending to businesses once more. In future, if we want to avoid a reoccurrence of the banking collapse and make effective regulation a reality, we need to beware of complacency and ensure the recommendations of the Turner Review are fully implemented. The price of freedom, after all, is eternal vigilance. To this end, on 29 April the European Commission set out principles on remuneration on risk-taking staff in financial institutions. As well as the Structure of Pay, the paragraph on Supervision makes interesting reading.
In the wake of Damian McBride’s resignation last month at the Prime Minister’s request, Sir Gus O’Donnell, the head of the Civil Service, issued a change to Civil Service rules. In future, all special advisers such as McBride caught disseminating inappropriate material will be instantly dismissed. This month the inquiry headed by Sir Gus concluded that the two emails that led to McBride’s resignation were not part of “a broader pattern of activity” and that he was not involved in other “propagation of unfounded personal allegations”. Well that’s all right then.
This year’s Chartered Institute of Personnel and Development (CIPD) learning and development survey shows that employers are becoming more selective in their spending decisions on training, with in-house development programmes enjoying the largest growth. It revealed that:
An article in People Management magazine warns companies not to repeat the mistakes of the last recession of cutting back on experienced staff and new trainees and risking skill shortages in 10 years’ time.
The National Union of Students and the Association of Graduate Advisory Services both welcome the government internship scheme. First announced by John Denham of the Department of Innovation and Skills in January this year (see our March Training News), this scheme allows graduates claiming jobseekers allowance to be eligible for three months’ internships.
Education
The main news in Education has been the decision taken by Ed Balls, Schools Secretary, to accept the findings of education experts and scrap science SATS for 10 and 11 year olds from next year. Teachers will assess pupils instead. The English and maths tests stay for the time being, although they too are likely to be dropped following pressure from the teaching unions and headteachers who plan to boycott them.
Two interesting statistics have emerged which throw an interesting light on the effects of the recession. For the first time in four years the number of children entitled to receive free school meals has increased. In the year to January 17,370 more children became eligible, representing 16% of primary school children and 13.4% in secondary schools. The meals are free for children whose parents receive benefits or earn less than £15,575 per year.
The second statistic is that according to the annual census of schools, the number of pupils attending independent schools has risen slightly, up by 380 to 569,080, or 7.21% of the total school population. This compares with 6.71% 10 years ago. The rise comes despite fees growing up by almost 6%.
