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Economy / Recession
The severity of the recession in the UK and the chances of an early recovery have continued to dominate the headlines throughout the summer. As the unemployment figures rose to 2.4 million, the highest for 15 years, Mervyn King, Governor of the Bank of England, warned that the pace of recovery would be “highly uncertain”.
Now more than one in six UK households with at least one person of working age does not have anyone in employment, according to figures released by the Office for National Statistics. This is the highest level since 1997 when Labour first came to power. Particularly worrying is youth unemployment, which has reached 928,000 and an all time high since records began in 1992.
The Consumer Price Index (CPI), the government’s preferred measure of inflation, remained at 1.8% in July, after dropping in June for the first time in two years. The Retail Price Index (RPI) which includes mortgage repayments also rose unexpectedly to minus 1.4% from minus 1.6%. This prompted the British Chambers of Commerce to congratulate the Governor of the Bank of England and the Monetary Policy Committee for their continuing commitment to a policy of quantitative easing in response to the recessionary threats faced by our contracting economy. The banks are also holding back on lending according to the British Bankers Association, with the rate of lending on home loans dropping to the lowest for nine years.
In contrast to France, Germany and Japan who have all reported modest increases in the last quarter, the UK economy continued to contract at a rate of 0.8% between April and June, more than double the figure expected by economists. The latest figures represent an annual rate of 5.6% decline in growth, the biggest fall since records began in 1995.
France and Germany are Europe’s largest economies to report an end to recession. They both grew by 0.3% between April and June. This unexpected recovery contrasted with the eurozone which contracted by 0.1% in the same period, an improvement on the 2.5% drop the previous quarter.
Commenting on the comparative differences in economic performance, Lord Mandelson said: “Different economies will show different patterns of behaviour. But the key point is all these economies rely on each other; 55 to 56% of our trade is with the rest of Europe. So when (they are) recovering that is good news for our manufacturers and our exports here.” It is no secret that the French and German economies are not as reliant as the UK on the financial markets and the cause of the global recession. As a result of growing confidence in Germany the euro rose to 87.82 pence, a new high against the pound (the fifth consecutive monthly increase) making the hard pressed British holidaymakers’ decision to stay at home seem like a sound one.
Japan, the world’s second largest economy, grew 0.9% and offered hope to other Asian countries. Japan’s recovery was undoubtedly assisted by the fact that between April and June China also reported a 7.9% increase in the annual growth rate. According to the European Commission this is also good news for Europe. Based on 2007 figures Japan is its sixth largest export market and fourth biggest buyer of imports.
The apparent recovery in the Japanese economy has not helped the UK employees of Fujitsu however. The giant Japanese IT company, the fifth largest provider of IT services in the UK and employing 12,500 people here, announced it would be axing 1,200 jobs, 10% of its total workforce. Unite, the largest trades union in the UK, condemned the proposed redundancies as “wholly unwarranted”.
The last word on the recovery must come from Sir Martin Sorrell, the chief executive of WPP, the word’s largest advertising agency. The company reported disastrous results for its first half year profits. WPP has reduced staff numbers by 6,700 worldwide since the year end and will be cutting its worldwide headcount by 6.3% to 105,393. Every inch the creative man and able communicator, Sir Martin predicted the shape of the recovery to be: “an L shape, and an italicised L. Where the question of a double dip occurs will maybe be at the back end of 2011 when governments, including the US, begin to have to deal with their deficits”.
Pay, reward and regulation
Once again the spotlight was on the payment of bonuses to City banks as Barclays and HSBC both announced a better than expected increase in their investment operations. Pay and bonuses were predicted to double at Barclays, to £250,000 for six months work.
The Centre for Economic Affairs and Business Research is forecasting that £4 billion will be paid out in bonuses across all banks this year. The Governor of the Bank of England, Mervyn King, called for tougher regulation on bonuses saying that some bonuses would be “absolutely astronomical”. Barclays Chief Executive John Varley immediately attempted to justify his bank’s remuneration policy and it was uncertain whether the FSA had the appetite for enforcement, faced with a worsening economic situation.
Compass, a coalition of 100 politicians and academics including Labour MPs, Brendan Barber of the TUC and Vince Cable, Liberal Democrat Shadow Chancellor, put pressure on Alastair Darling to introduce a “maximum wage” in the City. FSA Chairman and Turner Review author Lord Turner’s response was somewhat surprising. He told Prospect magazine that he would be happy to consider a tax to curb bonuses and proposing a global “Tobin tax” - a complex mechanism with a chequered history to control the derivatives markets. Boris Johnson, Mayor of London, was quick to deride such a suggestion that he claimed would damage the City’s hopes for recovery. The Treasury distanced itself from the proposals and the unfortunate man was then completely upstaged by Sarkozy who is clearly determined to take the high ground on banking regulation at the next G20 Summit. France of course is a foreign country and “they do things differently there”!
French bankers: agree new bonus rules or else…
President Sarkozy is wielding a heavy stick at French bankers. He has told them that they have betrayed his trust by failing to curb traders’ bonuses. He warned bankers that if they do not agree to a tougher code of conduct the government may introduce a law to cap bonuses. Moreover, transgressors will be barred from handling privatisations and any state business.
The developments follow the outcry caused by French bank BNP Paribas when it announced earlier this month that it would pay €1 billion in bonuses at the end of the year to the 17,000 traders, executives and other staff employed by its corporate and investment banking subsidiary. According to the French daily Liberation, this amounts to an average €59,000 per person. Yet French tax payers bailed out the bank to the tune of €5 billion last year to save it from going under. The outcry and pressure from the government has now led the bank to reduce this sum by half.
At its meeting with the French president, the French banking federation also proposed to:
- adopt a system of bonus-malus, where traders receive bonuses when their bank is in profit, but a negative bonus when it performs badly;
- limit guaranteed bonuses to one year;
- defer payments of 66% of bonuses for between three and five years;
- take greater account of risks taken by traders when calculating their bonuses.
The banks are, however, refusing a ceiling put on bonuses unless it applies to banks internationally.
And this international dimension is particularly relevant as Sarkozy intends, with these actions, to lead the moral high ground in preparation for the G20 summit in Pittsburgh next month. French banks have made it clear that although they are prepared to consider the proposals made by their federation, they are not willing to do it on their own. The initiative has to be international if French banks are not to suffer from foreign competition.
Meanwhile in Switzerland
The Swiss financial market regulators (FINMA) plan to introduce a number of new rules on 1 January 2010, including some affecting the payment of bonuses by banks. These broadly follow the G20 recommendations and have been welcomed in principle by political parties, employer and employee representatives.
But those concerned are more critical of the detail. The Swiss bankers’ association, like its French counterpart, is worried that excessive regulation will put its members at a disadvantage in what is a very competitive international market. It is also opposed to the publication of remuneration. The association of Swiss bank employees welcomes the new stricter regime and the transparency of salaries, but adds that external control measures and sanctions still need defining. Another employee association says it is imperative to limit salaries of board members, directors and associates.
Swiss political parties are in favour of the measures, which are hard but reasoned, and stress that clean and simple rules for salaries and bonuses are “indispensable”. No doubt this will be music to the ears of the beleaguered FSA Chairman Lord Turner who has strong views on the regulation of tax havens.
Universities - Graduate Unemployment
The summer of 2009 was not a good year to graduate with graduate unemployment reaching the highest level since records began with one in ten not in jobs or further education. The situation has been compounded by the fact that competition for universities is fierce with six applicants for every university place. The number of young people aged between 16 and 24 not in education, employment or training (acronym Neets) has also now risen to a record 959,000.
BT was one of the first blue chip companies to announce it was closing its graduate training scheme as Ian Livingston BT’s Chief Executive set about shedding 30,000 jobs over the next two years. In any event with only 130 graduate places available it does seems a rather smaller scheme than you would expect a technologically advanced company such as BT to require. Responding to BT’s announcement the Association of Graduate Recruiters said that the good news was that most paid graduate internships have been relatively unaffected and the government’s internship scheme will help in the Autumn.
Initially welcomed by the National Union of Students when first introduced in March this year by John Denham (see March Training news) the internship scheme has begun to court controversy in the shape of Alan Milburn, the Blairite MP for Darlington. The Government launched an impressive online portal the Graduate Talent Pool a sort of dating service to match graduates with firms providing the appropriate skills training together with an information site for employers. Milburn, who was appointed by Brown earlier this year to chair a panel of industry leaders to help people from disadvantage backgrounds on social mobility roundly criticised internships as socially divisive. The timing was unfortunate to say the least, his report published on July 21 called for fairer access to the high earning professions. Mr Milburn pointed to the “hoarding of opportunities” by wealthier families but also refers to the “forgotten middle class”. Alan Milburn is not alone in his views however, the Lib Dem MP for Harrogate Phil Willis has lent his support to the improvement of parliamentary internships and Unite is proposing an Interns’ agreement.
The Government’s Train to Gain Scheme has also been criticised by the National Audit Office in a report also published in July. Amyas Morse the head of the NAO said that while employers had seen a number of benefits from the scheme, it remained to be seen whether public money is reaching those areas with the greatest need.
GCSE results
No one was surprised to learn that the 670,000 pupils receiving their GCSE results this year were once again breaking all previous records with one five GCSE’s taken awarded an A or A*. Despite criticisms of dumbing down and soft options such as media studies in fact there has been a return to traditional subjects with boys out performing girls in maths. The reason for this change is the abolition of coursework according to an article in the Times. The results of the new work related diploma qualifications were published on the same day as the GCSE and Sir James Dyson took the opportunity to enter the educational debate once again. In a fascinating interview given to Radio 4 the entrepreneur expressed his impatience with the government’s lack of encouragement for engineering. Sir James was disappointed by having to abandon his plans for a design academy at Bath after problems in obtaining planning permission and lack of support from the government (see April training news).
CRB checking for all school visitors – Vetting and Barring Scheme
It is not just school teachers who will be affected by the Home Office’s new procedures for vetting and barring those who have contact with children and vulnerable adults. From October 2009 the responsibility will pass to the Independent Safeguarding Authority (ISA) who will carry out checks over and above those currently the responsibility of the Criminal Record Bureau (CRB). Clearly this development will have enormous implications for not just education but the NHS and Careworkers and we will be covering this important topic in more detail next month. Surprisingly it is not teachers who are outraged by the new measure but writers who describe it as “ludicrous and insulting”.
