Monday, 15 August 2016


Carney’s cut.  The Bank of England recently reduced its interest rate to an historic low of 0.25%. This is the first change since height of the financial crisis in 2009. Governor, Mark Carney, said the action was needed to ‘cushion’ the impact of the decision to leave the European Union (Brexit) and avert recession. He announced also a £60 billion increase in the Bank’s programme of ‘quantitative easing’ to pump more money into the economy, and the creation of a new £100 billion fund to encourage cheaper lending by commercial banks.  These plans confirm the view of most economists that Brexit has hit the economy hard. The Times said ‘the Bank has very limited ability to compensate for this’. Mr Carney insisted Britain can ‘handle’ these difficulties.

UK and information technology.  Helen Margetts (University of Oxford) points out that the Government’s use of IT has lagged behind other countries until recently. Low penetration of digitised services made them expensive and inefficient. They were often handicapped by complex legacies of networks and systems. Some of them went back to the 1970s. Installation of long-promised ‘digital era government’ became mixed in a series of large projects. They were huge in terms of cost, scope and timescale and bigger than any others throughout the world. These ventures were delivered by the same handful of computer consulting firms that rarely saw challenges to their hold on publicly-funded contracts. Departmental silos in the civil service and local authorities ensured there were few economies of scale and the failures of shared services. HM Treasury negotiated with departments individually for their expenditures on IT. There is evidence of some lessons being learned.

Economic trends shaping society.  Many developing countries are experiencing a rise in total employment. In most cases this is explained by the growing number of women in the workforces. Increases in credit and debt reduce confidence. There is a feeling the world could soon face another financial crisis. One sign is the Bank of England has a target at 2% for inflation. There is not any, despite the fact that some inflation is good for us. There is a boom in transportation – railways and airways grew globally in 2015. Sales of motor vehicles continue to rise. Another key trend is increasing poverty of young adults. And housing is a major issue for this group. The higher number of low-paid jobs has led to additional claims for welfare benefits and challenges to the government’s aims to reduce expenditure. Politicians are giving priorities to the needs of older people to reduce outgoings. Are young people paying the price? Will inequality widen?

Boom and bust for UK’s universities? The removal of controls on the number of admissions to each university in England has caused a scramble for students from both home and abroad. Retention of market share is a major factor. This country’s decision to leave the European Union will pour doubt upon the strategy. A report from the Russell Group of universities says its 24 members planned to invest £9 billion between 2012 – 13 and 2016 – 17 on building projects. The Higher Education Statistics Agency (HESA) has revealed that around £3.7 billion was spent in 2014 – 15 by British higher education institutions. Of course, some were entering a beauty contest to avoid being rejected as an ugly duckling.

The Association of Directors of Estate found that 67% of prospective students viewed facilities as crucial when choosing where to study. Universities are funding these expenditures through various sources, including accumulated surpluses, bank loans, public bonds, partnerships and donations. Kerry Barker points to a shift to debt. Demographics and our decision to leave the European Union (Brexit) bring more risk to the managerial table. The availability of 18-year-olds is going down and will continue to do so for several years. There are fewer students to go round. Also, bear in mind the doubts about the recruitment of students from the European Union. The UK Council for International Student Affairs estimated there were 107,925 full-time, non-UK EU students in the UK’s higher education in 2014 – 15. This would yield an income in the order of £1 billion a year. There are worrying signs that students from the EU will regard post-Brexit Britain as a less attractive place. There is room for innovation and marketing.

Five lessons from last season’s soccer are:  seize upon competitors’ weaknesses; break from conventional wisdom; money does not buy success; employ older and experienced workers; and never give up. Even if you are not successful immediately, keep plugging away.

Been there. ‘The single biggest problem in communication is the illusion that it has taken place.’ George Bernard Shaw, 1856 - 1950. Irish dramatist and critic. Nobel Prize winner.

Monday, 1 August 2016


Interest rates.  Nat West Bank is owned by the Royal Bank of Scotland.  It has just warned business customers that it might start negative interest rates. The reality of such a decision would be the bank charges customers for holding their money.  This is partly due to fears that the Bank of England’s base rate could turn to a minus figure.  Moves in this direction have happened already in several countries around the world. For example, Denmark, Finland, Germany, Holland, Japan and Switzerland.  More than $10 trillion of bonds trade at yields below zero.

Executive pay under scrutiny. The Executive Remuneration Working Group of the Chartered Institute of Personnel and Development (CIPD) is chaired by Nigel Wilson, chief executive of Legal and General Group. This influential committee has called for more transparency in the way senior managers/executives/directors are rewarded and intends to recommend wider disclosure of ratios in pay.  Also, businesses should end any reliance on long-term incentive plans (LTIPs). This is a bid to simplify and reduce the size of remuneration for executives. The approach is supported by some of this country’s largest shareholders and investors. Stefan Stern, director of the High Pay Centre, has said a greater proportion of chief executives’ salaries should be fixed and cash is preferable to shares in bonus schemes. ‘Performance-related pay is hard to operate successfully. To claim one individual has effectively been solely responsible for a big company’s performance is ridiculous. People are free to buy shares in their company, but to use them in pay is flawed.’ Research by the CIPD last year found that six in ten employees believed the high level of pay to chief executives across the UK demotivated them at work. Dr Almuth McDowall (Birkbeck University) has added that executive pay has risen beyond effective sums. Watch this space.

Know thyself.  Research in America shows that eight out of ten subordinates have a more accurate opinion of a manager’s performance than her/his own boss. The survey questioned 1,100 people from seventy firms, many are in Fortune’s top 500.  None of this is new.  Protective pyramids at employers have prevented reliable access to informed comments.  A manager should earn her/his mandate. And it’s not about popularity. Leaders make you feel different, not always better.

Pensions, again. The Intergenerational Foundation says employers in the UK spend twenty times more on direct benefit schemes than on defined contribution ones. And this is an advantage for only one-third of eligible people. The calculation concludes that around £42 billion is paid into defined benefit schemes, compared to £1.8 billion for those based upon defined contributions. The Foundation recommends a change in the measure of inflation, removal of ‘fair value’ from presentation of deficits in balance sheets and cessation of the tax-free lump sum for members of defined benefit schemes.

Leadership. Leadership seems to be discussed seriously when it is absent. Your scribe notes that those who think about it a lot are not leaders. Natural leaders are those who do not reflect on leadership, but have never considered any other position.

Be careful. ‘Always remember that the crowd that applauds your coronation is the same crowd that will applaud your beheading.’ Sir Terry Pratchett, 1948 - 2015. English novelist. More than 85 million books sold worldwide in 37 languages.

Think ahead. ‘The art of statesmanship consists as much in foreseeing as in doing.’ John Bright, 1811 – 1889. A Quaker, British radical and Liberal statesman. President of the Board of Trade, 1868 – 1871.

Monday, 18 July 2016


Policies for the economy and businesses.  The vote for leaving the European Union (Brexit) is a rejection of the Government’s plans. In general, electors felt they saw support for business, while their working prospects diminished. Central banks reduced interest rates to historical lows in the name of stimulating the economy and encouraging investment. Several rounds of quantitative easing inflated the prices of assets, driving the price of a home further out of reach. There was official hope that some of the gains would trickle down and benefit those citizens without reserves. However, evidence suggests that shareholders and executives gained from loose monetary policy, but the majority of employees did not. Watch out for changes in regulation. These are likely to include: curtailing the legal powers of shareholders; creating a mandatory place for employees in resisting unwelcome takeovers; controlling speculative acquisitions; making boards of directors more accountable to employees; protecting companies from being distributed to short-term shareholders.

Blame.  UK’s decision to leave the European Union (Brexit) is not the cause of the problems we will read about over the next few months. It might press to start consideration of the problems we have already. These include large private and public debt, a tax credit system which is driving that debt upwards, dreadful productivity, a property bubble, the insolvency of Italy’s banks and so on. But Brexit will not be the reason for them. Nonetheless, Brexit will present an unusual opportunity to examine the UK’s version of capitalism and to make it a better model.

Volatility.  This is not the time for hasty decisions and fast judgements. The UK’s decision to leave the European Union has bounced markets into confusion. People are doing silly things with their money. We are in the most turbulent situation for many years. Value of the pound has fallen. Yields from bonds have dropped. Sales of property are in turmoil. Guessing what to do next is now a dangerous activity.

May on democracy in the workplace.  Our new Prime Minister has emphasised that ‘putting people back in control’ is central to her vision. She has shown her government is neither a continuation of David Cameron’s stance, nor a bonfire of regulations in the labour market, as favoured by Andrea Leadsom, her former rival. Theresa May’s proposal to have representatives of workers on the boards of public limited companies puts commercial democracy at the top of political agendas. Of course, the devil will be in the detail. Has the Labour Party been out-manoeuvred on this issue? In 1977, the then Prime Minister, Tony Blair, received an extensive report on industrial democracy from a commission led by Oxford academic Baron Alan Bullock. There were many recommendations. Nothing happened. The trades unions could not agree how it would all work.

Get the facts.  From an article titled 'Humanism in Medicine' - The Lancet (1978):  'One way of catching class attention is to ask what advice students would give when presented with the following family history.  The father has syphilis, the mother tuberculosis, they already had four children - the first is blind, the second died, the third is deaf and dumb, and the fourth has tuberculosis.  The mother is pregnant with her fifth child, and the parents are willing to have an abortion should you so decide.  Assuming there aren’t too many Roman Catholics in the class, you will usually find a majority in favour of abortion.  You congratulate the class on their decision … and then tell them they have just murdered Beethoven.' 

There is evidence.  History teaches us that men and nations behave wisely once they have exhausted all other alternatives.’ Abba Eban, Foreign Minister of Israel, 1966-74.

Debts. ‘A promise made is a debt unpaid.’ Robert W Service, 1874-1958. English born Canadian writer.

Monday, 4 July 2016


Volatility.  The headlines say our economy is imploding. Costs of borrowing are going up. The stockmarket has shown signs of collapse. The pound has been on a slippery slope. Merryn Somerset Webb, the shrewd editor-in-chief of MoneyWeek, says this is not all bad. It is volatility, not collapse. The markets are working to find new prices for assets to reflect changes. This is what they are supposed to do. Three things matter right now: sovereignty, trade and migration, and what kind of deal the UK can get in departure from the European Union. Hard work ahead. The sectoral elites will catch up.

Research and money.  Kathryn Oliver (University of Oxford) has made a surprising discovery. Our government spends billions of pounds on research aimed at guiding and informing policies. Yet it is now known our rulers are unaware of what is commissioned and disseminated. Moreover, there is evidence that government-funded research is sometimes deliberately buried or delayed. These realisations do not encourage the promised transparency and open government. A new report from Sense and Science found that only four of the twenty-four government departments keep central records of what research they authorise and publish.

SMEs and fraud.  Tungston has published the results of a survey relating to corporate procurement. It revealed that this country’s small and medium-sized businesses, on average, acknowledge losing £1,700 each year to fraud associated with invoices. The real loss might be much higher because this crime goes undetected and some SMEs are reluctant to disclose it.

Occupational pensions.  Andy Haldane is the Bank of England’s chief economist. He has emphasised that pensions in the UK are over-complicated and impossible to understand.  Mr Haldane told the guests at a major annual dinner in the City of London that this undermines hopes and harms individuals’ efforts to save for later in life. These comments follow reports which have concluded the general public does not generally have the confidence or knowledge to find out how much is needed for retirement.

Bad boss?  Andrew Saunders and Management Today have set out the telltale signs that a management style needs a makeover. These are: You are unavailable. You cannot recall the last time you said ‘sorry’ or ‘thank you’. You have no idea what your working group get up to in their spare time. You pull rank to win arguments. You do not listen enough .... or listen too much. You recruit easy, unthreatening people. You never stray beyond your comfort zone. You turn everything into a competition. You forgive failing in yourself, but not others. You say ‘I know this is stupid, but we have to do it anyway.’

Good old Clem.  ‘Democracy means government by discussion, but it is only effective if you can stop people talking.’ Clement Attlee, 1983-1967. Deputy Prime Minister of UK, 1942-45, Prime Minister, 1945-51.

So rare. ‘With conversation, talking is the craft, listening is the art.’ Oscar Wilde, 1854-1900, Irish playwright, novelist, poet and wit.

Monday, 20 June 2016


Confidence.  The report for the second quarter (2016) from Grant Thornton and the Institute of Chartered Accountants in England and Wales contains some uncomfortable key points.  Business confidence remains on the downward trend of the last two years.  Domestic sales continue to ease and exports have started to rise.  As a result, overall growth in turnover has stabilised but at a slower pace than a year ago.  Profit margins are under pressure as businesses are able to achieve only modest increases in prices.  Capital investment and research and development are still sluggish because of uncertainty in the wider economy.

Remain cautious.  The Organisation for Economic Co-operation and Development (OECD) has warned that the world’s economy is stuck in a low-growth trap.  It said monetary policy alone could not be relied upon to deliver growth and governments ought to use other available fiscal tools, such as additional investment in infrastructure to stimulate demand.  OECD pointed to several risks for global growth.  The immediate one is if the UK votes on Thursday to leave the European Union.

Blair is still around.  The continuing attraction of the former prime minister’s ‘third way’ to politicians in Europe was spotted by George Eaton in the New Statesman.  It confirms the failure of critical social democrats to establish and advocate an alternative. Tony Blair said recently of Jeremy Corbyn’s supporters: ‘It’s clear they can take over a political party. What’s not clear to me is whether they can take over a country.’  Mr Blair’s lack of attention to the former task enabled a revival of the left. Alastair Campbell summed-up the situation:  ‘We failed to develop talent, failed to cement organisational and cultural change in the party and to secure our legacy.’ New Labour did not outlive its creators. Some of Corbyn’s allies privately fear Labour will one day re-embrace Blairism. Any new adherents would not dare to use the name.

Higher education and better pay.  Politicians have encouraged the notion that the offerings of higher education will make individuals richer and the economy more productive. The Times (Alison Wolf) has wondered why it is that eight years after the financial crisis and with more graduates than ever before, we have ‘low growth, falling or flat productivity and stagnant wages?’ Also, around 33% of graduates are in ‘non-graduate’ jobs. Of course, graduates do, on average, earn more than non-graduates, but if the real incomes of both decline, the pay gap between them can stay the same, while students’ fees and debts remain fixed. We could fund higher technical education by providing skills the labour market demands and stop favouring teenagers over adults for loans. But above all, we could stop treating universities as having a narrowly economic purpose. This would mean an intensive and new think about what a university ought to be.

Corporate personality.  An organisation’s self-perception plays only a minor part in its personality. Almost everything in better results is about what the customers believe or feel about the business, brands and services. These come from experience and observation. Snippets – even if hearsay – on a product’s performance, price, availability, design, delivery and after-sales service are fragments in the mosaic. But the product is not everything. What is conveyed by telephone, letters, emails, salespeople, a receptionist’s greeting? The signals transmitted by the group (team?) with which a customer has contacts bellows volumes.

Sad reality.  ‘We have more ability than willpower, and it is often an excuse to ourselves that we imagine that things are impossible.’ Francois La Rochefoucauld, 1613-80, French writer.

Process. ‘Between saying and doing many a pair of shoes is worn out.’ Proverb.

Monday, 6 June 2016


More figures.  John Ashcroft made a shrewd observation in The Saturday Economist (28 May).  The Office of National Statistics released the second estimate of Gross Domestic Product last week. The overall figure is largely unchanged with 2% growth year-on-year. Household consumption is still driving the UK’s recovery with spending up 2.6%. Investment increased by 1.1%. The trade figures (imports and exports) continue to disappoint. Most analysts expect growth of just 2% for 2016. The trade deficit (imports in excess of exports) and the current account deficit (difference between the nation’s savings and investment) are the country’s major problems. This is not a time to take risks with flows of capital, international confidence and foreign direct investment..

The national debt.  Our Chancellor’s promise to reduce the UK’s national debt has gone wrong. It continues to go up.  There are three ways out of this trap. Two of them are out of the question. The first option is to pay it back by outgrowing it. This is not available right now. We cannot hope to have sufficient growth to get rid of such a large debt. The second possibility is to default. This would end the financial system and is unthinkable for a major economy. So, it will not happen. Government wants inflation.

Interest rates have been at near-zero for more than seven years.  Not many people benefit from this policy.  Pensioners reduce expenditure and young people are discouraged from saving. Paul Kupiec pointed out in The Wall Street Journal that low rates stimulate risky investments to chase higher returns and they do not boost economic growth.

Houses on the move. Registrations of sales went down by 46% in May. noted that the average price of a residential property reached £234,069 in April. Now there is a reduction is demand. This is partly due to buy-to-let investors pulling out of the market after the surcharge on stamp duty came into effect. There are fears associated with the impact of a possible ‘leave’ vote in the referendum on the European Union. Sellers will have to be more realistic with asking prices and lenders might refuse to authorise high loan-to-value mortgages. Many British buyers of holiday homes in the European Union have asked for a ‘Brexit clause’. This will allow them to withdraw if the referendum leads to edginess in the market.

Managers could do better. The Chartered Institute of Personnel and Development’s research points to issues for managerial action. Giving feedback is a weakness. Only 41% of the employees said their line manager always or usually gives them feedback. We cannot expect someone to keep doing a good job if s/he does not know what ‘a good job’ looks like. 25% of the participants said their boss never coaches them at work. Just 9% replied they always do. More than half (53%) recorded that their line manager only sometimes, rarely or never keeps them in the loop about what’s going on. This weakness on communication can leave employees feeling alienated. Little more than half of the respondents said their manager could always or usually be relied upon to keep her/his promises. 18% reported that their boss never or seldom treats them fairly. Conclusions of this kind deserve attention.

Ouch!  ‘Leadership is like rugby. It requires you to put your head where it hurts.’ Mark Evans, chief marketing and communications officer at Direct Line Group.

It’s good to know. ‘The purpose of studying economics is not to acquire a set of ready-made answers to economic questions, but to learn how to avoid being deceived by economists.’ Economist Joan Robinson, quoted in a newsletter from PFP Wealth Management and in MoneyWeek (3 June 2016).