Thursday, 31 January 2013

Taxing time

MPs have been grilling the 'Big Four' accounting firms today - PwC, Delloite, KPMG and E&Y
Tax avoidance and 'planning' account for between a quarter and one third of all revenues that that the behemoths create - and its probably the most profitable work.  PwC made over $7bn in Tax revenues in 2011 and my guess is that the UK is a big chunk of this as we are the centre of the financial world.

When Jane McCormick, UK head of tax at KPMG, says: “Our main purpose is to help our clients calculate and pay their tax.” I start to shake with uncontrollable laughter / anger.  If one of her minions were to say this, in all seriousness, in the privacy of a client's Boardroom Jane McCormick would probably sack them on the spot!

The MPs are generally useless at any kind of investigative cross examination and today was no exception, the smooth talking consultants were able to bat away there piffling question with disdain. Anyway Parliament shouldn't be so smug, the main reason for this booming industry is the appallingly complex tax regime that we have in the West -and the UK is one of the worst.

Gordon Brown was responsible for more tinkering and rule adding that anyone since Pitt the Younger and George Osborne (the worst Chancellor since Tony Barber) has been even worse.  Imagine this, he has made over 400 tax changes since coming into office  300 up 120 down! No wonder the tax accountants are having a field day.  My thanks to the source below published by Conservative Home!!

The UK guide to tax regulations came in at 5,952 pages in 2001, grew to 9,866 under Labour in 2007, and has been beefed up to 17,795 pages under the coalition, that's a bloody disgrace.
I think its probably accepted that simple and fair taxes are the most efficient.  George Osborne has failed in 3 years to bring forward a single simplification, which could have raise revenue without lining the pockets of the accounting firms.  Worst Chancellor since Tony Barber.

ANOTHER BIG FOUR - can you name them?

Wednesday, 30 January 2013

Crossing the boundary

The vote, defeated in the House of Commons, this week on whether the boundaries commission should alter the constituency boundaries for the next election, raises a number of important issues for the coalition and the future of our democracy.  

Our parliament is elected on the basis of old constituencies that now bear little relevance to the population distribution of our islands.  Specifically there has been a migration of people from inner cities to the suburbs and satellite towns, creating constituencies with highly variable numbers.  This is important because MP should all have the same face value, today there are some MPs are elected by over 100,000 people and others that have only 30,000 constituents.  This population change has benefited the Labour Party hugely – some estimates calculate that the current imbalance gifts Labour about 30 seats, or nearly 10% of the number required for a working majority.

It seems pretty weird to me that MPS are allowed anywhere near the subject of constituency boundaries, this invokes the the wiff of rotten boroughs and gerrymandering.  Should this not be handled by an independent group who have strict terms of reference.

The Liberal Democrats voted down the proposed changes in a tit for tat spat around House of Lords reform, which the Tories had refused to support.  The Tories opposition to ‘Lords’ reform was based on the irrelevance of the measure and it’s pretty obvious to all that Parliament has more pressing issues – the economy for one.  Actually the real reason was the earlier, and much more painful, defeat on proportional representation, whether the Tories honoured the commitment to a referendum and then defeated the Libdems roundly!.

The Liberal Democrat party have some excuses for the poor quality of their decision making – the small number and poor quality of their MPs being their best justification.  Ask yourself the question - how many friends at university did you have who wanted to be a Libdem MP?  But their leadership should have been wise enough to realise that ignoring the convention of adopting fair constituency boundaries is a dangerous departure for a minority party.

Who will listen now when the Libdems bleat on about fairer elections and proportional representation when they have acted instinctively against this measure of fair constituencies, which the basis of free and fair elections. 

Of-course one should not forget the Labour party who also opposed the measure – but they have a track record of economic gerrymandering (Gordo’s tax credits) and have the lothian (Scottish Devolution) question looming.  Without the old courtesies to our constitutional conventions we may need to rip up 1,000 years of progress and try to codify our wonderfully unfettered constitution.  So Clegg has proved to be a danger, not only to the election prospect of his party, but the future of democracy in Britain.  SHAME

The Empty Quarter

David Cameron has found the excitement of foreign travel too much of a temptation.  Like Tony Blair before him, the allure of a little gunboat diplomacy has been irresistible; initially we offered some logistics support  but Britain is now on the path of direct involvement in the "meltdown in Mali".

Where Blair had the excuse of British casualties in both 9/11 and 7/7 and a special relationship to uphold, it is more difficult to see the political motivation for Dave.  Support for the French is a minority sport in Britain.

Firstly it's important to nail the cause of the rumpus, and this is where the problems start.  Saharan Africa is of course a physical and political desert and becoming more so due to climate changes in the region.  Rotten leadership, broken economies and tribal conflict are 'laboratory conditions' for Muslim insurrection.  At this stage it’s not clear if there is more than a loose alliance of Jihadist groups, held together by the 'hand if God'.  What is clear is that the empty spaces and political vacuum in North West Africa, is being filled by an assortment of Muslim local opportunists and some well-travelled extremists from around the world. Africa needs to fill this empty quarter with hope and support.

Distribution of Islam in AfricaBut this is not only a religious problem, many of the protagonists have been involved in cigarette and drug smuggling for many years and see global terrorism as a convenient side line to their more commercial activities.  The guy who organised the Algerian gas plant raid at Almenas a Mr Belmoktar is also known as Mr Marlboro, for obvious reasons

So is the West right to try to fill this vacuum?  The answer is undoubtedly, yes and it’s important to do so now before the Jihadist get a strong foot hold.  Will this area of the Sahara and the neighbouring Sahel region to the South become the next Afghanistan?  The answer to this question is probably no.  Without the sort of state sponsorship that some regions of Pakistan provide to the Taliban and Al Qaeda it’s difficult to see this ragbag of religious opportunists creating a second front for the war on terror.

This spat came at a good time for Mr Hollande, the French President, with his economic policies widely ridiculed and the axis relationship with German under pressure this distraction could not have come at a better time.   Like Wavell at the stat of the desert war there will be rich pickings against a disorganised enemy.  But if the metaphorical Italians are replaced by the German storm troopers , well organised battle hardened Jihadist, the French may wish they had stayed at home

This leaves the vexed question of our involvement, which obviously has more to do with our EU renegotiation than any commitment to France's scramble back to Africa.

Tuesday, 29 January 2013

Kicking the habit of QE

The great and the good have been trying to resolve the riddle of rising employment with no GDP growth. This implied weakness in productivity is certainly a troubling and new phenomenon.  There are a myriad possibilities that might be contributing factors, I have picked four: high government spending, low productivity, poor tax receipts and poor private sector performance.  The common threads that harness these 'four horses of the apocalypse'  are quantitative easing (QE) and the associated low interest rates and high inflation.
Firstly, let's look at low interest rates. The Bank of England has held rates at 0.5% for the last four years, given inflation has been running at over 3% for most of this period we have had real negative rates of interest averaging -2.5%+.  Trying to grow the economy when savers (people and businesses) are losing 2.5% of their income and value every year, is going to be tough.  These negative rates have been helpful in some respects - propping up failing businesses and over extended families.  But there has been a huge down side in penalising pensioners, other savers and well run businesses.  This benefits equation is clearly out of balance with low interest rates helping distressed non-contributors while disadvantaging those who, ordinarily, would be the engine for growth.  These secure businesses and private individuals who are most likely to invest and spend must be the main components for GDP growth.
The negative interest rate has had another significant effect on the business world.  Well run and productive businesses looking to invest have had the distraction of having to make increasingly large pension provisions as investment return dwindle to nothing.   Another bi-product of negative interest rates has been an overvalued Pound, which has damaged our exports and sucked in cheap foreign goods.  The cumulative effect of negative interest rates  have had the unintended consequence of creating a vast number if Zombie companies - I have been banging on about this for a while. Zombie companies can't afford to make the redundancies required and are in a permanent loss making position, only able to pay the interest on outstanding loans.  I have estimate that these Zombie companies in the UK amount to over 3 million employees. These unproductive businesses and employees are soaking up financial and human capital resources that other better run businesses need. 
So while negative interest rates seem like a good idea, keeping mortgage payments low they also have put a massive break on the economic growth.
The other consequence of QE has been stubbornly high inflation, which has been running at 2-4% over the last three years.  The cumulative effect of negative interest rates and high inflation has been the killer blow that has forced savers to hoard cash and business to shelve investment plans.  The Government has been unlucky that the Pound has been perceived as a safe haven, sheltered from the storms buffeting the Euro and the Dollar. 
These mistakes in economic management were started by Gordon Brown in the aftermath of the credit crunch, desperate to keep the economy afloat with an election looming 'Gordo' was not planning ahead.  The Coalition have, under the guidance of The Bank of England, continued the process of QE, which exchanges future government debt for short term monetary relief.  In retrospect a more traditional approach to maintaining low inflation (with all the pain and insolvency that would have caused) would have made the 'dip' steeper but may have accelerated the recovering.  The path we have chosen looks likely to offer a stagnant economy for the foreseeable future, unless the government change tack.
To rectify the problem the focus needs to be on lowering inflation, rewarding savers (not the over borrowed),  whilst maintaining the value of our currency (which is starting to come under pressure).  Oddly these are complimentary medicines and we need to start now!

Sunday, 27 January 2013

Depressed now?

Some say that our poor growth (stagnant GDP) is a due to a mis-managed economy, and being no fan of Osborne I tend to agree. The problems we have are complicated and driven by a number of factors, trying to connect these might shed some light.

Public sector spending
In 2009 spending was £629m against £694m this year, that's a big increase when we were meant to be slashing our public sector - £47m of £65m increase has come from health, pensions and welfare.  These were all areas that the coalition either ring fenced (health and pensions) or have waited too long to tackle (Welfare).  Another problem has been the stubbornly high inflation inherited from Labour but not dealt with effectively; leading to expensive inflation linked increases in department spending.  To effectively put half your spending out of the austerity plan was madness and Osborne should have known better and quantitative easing has also worked against us pushing up inflation.

Tax receipts
The chart below tells an interesting story - basically receipts from income tax and corporation tax have let the side down (no growth since 2007).  There are two main reason for this.  The enormous collapse of bonuses paid to the bankers (and relocation of banking activities) and other highly paid staff and the fact that companies are having to top up their pension schemes from cash surpluses to counter the effects of quantitative easing (which has keep interest rates and investment income so low).  Its quite probable the the negative side effects of quantitative easing has been to kill off company profits and investments.  So the benefits of creating a number of new private sector jobs has not come through in tax revenues.

Private sector growth
Although we may have created a large number of new jobs in the private sector we aren't creating enough.  Our population is growing quickly and this gives the appearance of high levels of employment but the statistics are deceiving. As the Telegraph tell us:

The coalition have been busy measuring people in employment not the employment rate (% of those working in the population).  The UK employment rate fell sharply between 2008 and 2010, stabilised between 2010 and 2011, but despite subsequent improvement remains 1.7 percentage points below the pre-2008 recession peak of 60.3%. Without any further rise in population, the total number of people in work would have to increase by more than 900,000 for the employment rate to return to the 2008 peakof 2.8 million. So do we have Record employment? Not really.

The final piece in the gig saw puzzle is the terrible productivity numbers.  As the number of people in work increase this should flow down to an improving GDP number, as we know this is not happening!

The issue here is (and I have blogged on this quite a bit) another side effect of Quantitative easing - the exceptionally low 'real' interest rates have allowed a large number of failing business to hang on.  The banks are also unwilling to take the right-off hit as they try to repair their balance sheets.  So we have a large number of Zombie business unable to afford redundancy costs but also not generating the profits the economy needs.

I'll have a go at this tomorrow, time for a whisky!!

Our very own NHS

It has become politically incorrect to have any negative thoughts about the NHS.  Indeed the present Government is so scared of this institution and the fond place it has in our nation's heart that they have protected it from any spending cuts (The NHS also had a starring role in the Olympics open ceremony). 

Today's story in the Telegraph is yet another example of how poorly the National Health Service is run; specifically the low standards of clinical care that are now the norm.

To understand the financial cost of all this one needs to navigate to the NHS Litigation Authority website (there is an entire business set up to manage the results of this poor care)

You have to be diligent to find the statistics but buried deep in the reports on the NHSLA website there were clinical litigation claims outstanding against the NHS that amount to over £18 BILLION.

From their website:

Outstanding liabilities

As at 31 March 2012, the NHSLA estimates that it has potential liabilities of £18.9 billion, of which £18.6 billion relate to clinical negligence claims

Saturday, 26 January 2013

Picking winners

Since forecasting the end of the recession back in December Calling end of recession  I have been on a roll.

I followed this up with a blog on the 2nd Jan when I wrote Reading the tea leaves

In truth I am a terrible share / stock tipper but I was definitely right on this one. 

Since publishing this message the market has been rising remoselessly.  Did I invest (more importantly did you invest) - you bet your life I didn't!  So what's going to happen next - Looks like it will keep going for the next few weeks - we will see??

UK's answer to Las Vegas

Rochdale disturbances
The strip in Rochdale, a mass of flashing blue lights, a Kebab shop and a couple of pedestrian crossing lights winking in the mist.

Rochdale a Lancashire town of about 100,000 souls is one of the poorest towns in the UK, its main rivals for this accolade are all within in about an hours drive!  Poor town in a poor area.  The only good news is that Rochdale is set to become the Las Vegas of the North West.

The reason for this optimism is that the town has been gearing up and now has staggering total of 69 gambling terminals at 19 betting shops. With over £1million is staked on each “fixed odds betting machine”this amounts to £510 for every adult betting in the town, surprising when the town is home to the Falinge estate, recently named as the UK’s poorest area for the fifth year running — with 72 per cent unemployment.

FOBTs on Green Lanes

To be fair this state of affairs says more about the impoverished state of our high streets (the gambling dens have moved in because of low rents) and dire local planning than the good people of Rochdale.  There needs to be a limit on the number of betting shops per square mile - about 1 would do!

Read more:

Zombie 2

Here is a link to a quite interesting discussion between the senior staffers at the Economist on why UK GDP is so flat with rising employment levels.  They offer 3 or 4 alternative reasons but perhaps the most compelling is this idea of Zombie companies holding us back.
These are companies are typically loss making but surviving because of the low interest rates on their loans.  The Bansk are unwilling to close them down because of the 'right offs' this would entail that will harm there balance sheets, when they need to bolster their capital reserves.

The Economist believes more credit easing by the Government might be the solution; allowing the cash strapped banks to 'let go' of fold these unproductive loans so new more dynamic companies can come through.  Feels like any solution will take a while.

See my last blog on this - We're all Zombies now

Thursday, 24 January 2013

Thanks Gordo

My friends on the left are not going to like this but the group affected most by the overall austerity package in the UK —not just in terms of pounds, but also as a proportion of their income—has been the richest.

Those in the top tenth of the income distribution have been hit by a combination of increases to income tax and national insurance contributions, restrictions to pension tax relief and withdrawal of child benefit. Research tells us that households in the top tenth of the income distribution will have lost about 7 per cent of their income as a result of the consolidation package, compared with between 4 and 5 per cent for those in the bottom third of the distribution, and about 3 per cent on average overall and don't forget that welfare payments were increase by 'only' +1% following inflationary linked rises for the last 4 years (during which time everyone else has had declining incomes) to howls of protest!

So to a large extent we really are “all in this together” or rather a quite small % of the population are now paying off the substantial part of Gordon Brown's debts!

It's the economy stupid

Back to reality with a bump, after the euphoria of the ‘EU Speech’ Dave has a nasty reminder of the real world politics that he has to face down.  The Economist (god bless them in their St James’s ivory tower) spend good money on a survey of what ordinary voters think is important and here is the latest chart.

No surprise results.  The chart shows that 71% of us think the economy or unemployment (the economy for non-economists) is the most important issue facing the UK today. There are then a bunch of the usual suspects – health, immigration etc and …er … Europe (which didn’t make the top 10).

So forget the pygmies in UKIP and the pathetic meanderings of RedEd, there is work to be done on the economy.  The dismal performance of the coalition to reduce the deficit and to unlock private capital that is sitting around in bank accounts earning negative (real) interest needs to come back to the top of the agenda NOW.  So what could be done?

1.   First up Dave needs to have a clear out at the Treasury – Little George has proved that the step up from a small time soft furnishing business to running the National economy has been a step too far.  Dave should get his best brains on the subject now – my guess is that Gove could do it but my preference would be for Ken Clarke, he did it 20 years ago so let’s unleash him on the Treasury mandarins who have been so poor at raising tax receipts and bring down the borrowing requirement.  Bring on the Hush Puppy shoes!

2.   Next we should take away the self-inflicted restrictions of protecting the Health service and Pensions budgets which are obviously un-affordable.

a.    My bet is that the NHS is still ripe for massive improvements both in clinical care and efficiency – we should nationalise this tottering smoke stack this summer.  Some sensible insurance scheme to cover those most vulnerable could be  rushed through – but my painstaking estimates tell me that privatising 20% health service would solve the 2013/14 deficit in a single transaction

b.    The pensionable age should be raised immediately to 68 for both sexes and some tax breaks for the over 60ies could help smooth the pain

3.    We should privatise 50% of Universities to create a more dynamic market for further education and government support for all universities should be based on the number of graduates going into full time employment

4.    Welfare payments could be reduced (not raised by 1%) to be in line with the real fall in incomes that the private sector have had to bear

5.    A flat rate of corporation tax should be imposed on foreign business, which would be calculated as a % of turnover, directly calculated from the VAT statements and paid quarterly.  This will have a number of benefits:

a.     It would force more business registered in the UK to pay tax

b.     It would drive away low margin / capital extensive businesses that we should be able to start up with domestic capital

c.     It would reduce the cost of collecting these taxes

d.     It would attract high margin / high value add business to the UK

e.     It would stop foreign companies setting up here that choose to operate at a loss to gain market share

6.   We should cut National Insurance for the under 25 year old's to 50% of the full rate to help with youth unemployment 

7.   We should sell off the remnants of the empire – except the Falklands just to keep the Argies on their toes!

8.     There needs to be some investments incentives to get business out of their risk adverse habituĂ©, maybe knighthoods for agreeable Chairmen might be considered.

Anyway I hope that’s helpful – it made me feel better anyway!!

Wednesday, 23 January 2013

Dave's Speech

Not much in the speech, certainly nothing new.  But the politics are interesting of course. By committing to an in-out referendum Dave is hoping to put UKIP on ice at the next General Election (2015), if he doesn't do this then the fear is that the centre right vote will be split and Labour will be back in power.

I guess Dave is hoping that the other parties will opt to be anti-referendum, which would further shore-up the core Tory vote, or would it.  The really interesting scenarios arise from ones prognosis of the Euro negotiations, if they go badly Dave has signaled that he will campaign for withdrawal and this quite likely. So here are some of these scenarios modeled out.  Maybe Dave is betting on a poor deal from Europe and the freedom to campaign for withdrawal, because this looks his most likely road to success.

When Harold Wilson tried this referendum trick in the '70ies he managed to con the country that his 'new deal' was substantially better - when it was anything but!  Dave will be under much greater scrutiny so it will be very difficult to prove that the new deal is different, but countered against this a number of Europeans will be desperate for us to stay in! So let the fun begin!

Tuesday, 22 January 2013

Obama trends

What would Dave's graphs look like - not as good as this!!

  • Income up
  • Oil production up
  • Company profits up 
  • Jobs up (just) in Private sector 
  • Less government jobs
For a liberal not too bad!

And then you spot the debt line - that kills the story stone dead

Cap in hand

As the financial services Industry has focused on the largest global investment opportunities and moved inexorably towards electronic decision making the industry has become less and less relevant to consumers.  Interestingly, the vacuum this structural change has created has not been filled as quickly as one might expect.  But there are sign if life in the customer orientated space that has been left behind.

Innovation will always win out and there are signs that people power armed by the web will change the finance industry for good - enter Kickstarter, a “crowdfunding” website, that has recently raised $10.3m from 68,929 people for PEBBLE (a watch that displays messages from the wearer's iPhone), after Pebble's inventors posted a pitch on Kickstartera “crowdfunding” website, this dwarfed the previous high of $3.3m set in March.  This success “feels like an inflection point”, says Yancey Strickler, a founder of Kickstarter, a site where anyone with an idea can ask the crowd for small sums of money that, added up, can bring it to fruition.

Crowdfunding is booming. A report by Massolution, a research firm, forecasts that $2.8 billion will be raised worldwide this year, up from $1.5 billion in 2011. The effect of this has perhaps been most marked in the creative arts: around 10% of the films shown at the Sundance and Cannes festivals this year were crowdfunded. 

So as the titans of Financial Services withdraw further into algorithmic and electronic trading a there is hope for the little man – if he is prepared to go cap in hand to the Web!!

Bush fire treatment

Some commentators have suggested that about a third of our businesses are 'Zombies' (unproductive and lacking innovation), certainly a large number are loss making.

In my last Zombie post I looked at the scale of this problem, since then HMV and Blockbuster have gone under: 

Whilst low interest rates have allowed these companies to limp on, as we head into the 5th year of the downturn owners and managers must be getting weary. We have seen an increase in insolvency, particularly in those industries being impacted by other structural change, retail by on-line and finance by regulation.

Perhaps 2013 will the year when the less well run businesses in stable sectors will finally throw in the towel. This might even create the conditions for the economy to find a new lease of life.  The theory is that in the same way that a bushfire clears all the deadwood and unproductive undergrowth to create space for new shots and fresh grass a recession should do the same for poor companies. 

In this recession because of low interest rates we still have too many unproductive companies that are tying up skilled staff and capital that could be used to start new more productive enterprises.  The bushfire is tough medicine but it seems to work in the US where there is a much greater velocity of company failure and start up.

Monday, 21 January 2013

Our Green and pleasant land

I would have thought that Mr Clegg, being a Sheffield MP (for the time being), would have an alternative approach to the building of 2 million homes in the already congested South East . By making our great Northern Cities (including Sheffield) more attractive places to live and work we could avoid concreting over our precious countryside in the overcrowded South East.. 

Green and pleasant land: the Government has listened to objections to its planning reforms - Hands off our land: An end to the blight of the builders’ charterReversing the current policies of 'WreakingBall' Boles is vital or great swathes of England will be lost to Barratt Homes for good. Why move the houses to the countryside when we could encourage people to move to where the houses are!  The hoodlum Planning minister Nick Boles has suggesting that the nine per cent of England built on so far should be increased to 12 per cent to meet demand. This would see 1,500 square miles of open countryside - over twice the area covered by greater London – covered with new housing. See my last post on this scandal.

Coming back to the deputy PM you will notice that the weasel Clegg is offering to build all over his coalition partners constituencies – I wonder why




Sunday, 20 January 2013

And the weather outside is frightful

Pretty chilly weekend as the Arctic lands in Southern England.  For a country that prides itself on its terrible weather our winters are normally bleak, dull, wet and long. So some snow always raises the spirits at least it would do in any normal year, but 2012 / 13 has been a stinker and here are some highlights:

The UK mean temperature of 8.8 °C for the year - that's a good reason to emigrate now!  This was  0.1 °C below the 1981-2010 average (that pretty F---ing cold). It is worth noting that only 2 years (2010 and 2012) of the last 16 have had annual temperatures below this average.

The summer (what summer I hear you say) was a little warmer than 2011, but otherwise the coolest since 1998, and it was the coolest autumn since 1993.

The UK annual rainfall total was 1331 mm (115% of average), the second since 1910, narrowly beaten by 2000 (1337 mm). England had its wettest year ever.

We had  1356 hours of sunshine, which is 15% of all time or about 27% of day light hours - pretty bloody dire when you consider that I would have been in the office at work of 65% of this sunshine. That's about 1 hour and 20 minutes of sunshine on average per day!!  In statisticians speak - bugger all!

A woman walks through a line of snow-covered trees in Clifton, Bristol, as snow grips the South West

One Direction for Dave

So Euro speech day is now tomorrow as Dave tries to up-stage Obama's inauguration (I dont think so Dave).  Some of the speech has leaked to an impatient press and the Spectator has some snippets.

Britain is unusual in that its most powerful politicians openly question their country’s membership of the union. It is isolated among sizeable EU countries in its determination to change fundamentally its relationship with the union. Much more than Mr Cameron implies, Britain is alone. But there are things that we have in common as poll below suggest.  Asked if The EU is going in the right or wrong direction the stats as presented as a %

This is interesting and Dave can build on the fact that many people in the EU feel that The EU is heading in the wrong direction - in fact 52% of us think this is the case, obviously the Greeks, Italy and the Spanish have a problem but even  countries like Belgium and Holland are as negative as we are.  So we have an opportunity to use this disaffection to recast the EU into a more productive Union for those in the Eurozone and those outside.  So we're all in the same boat -

This could be Dave's big moment in history but its nor likely to eclipse Obama's big day!

Shedding the Pounds

Sterling has fallen more than 2pc against the dollar and 3pc against the euro already this year, marking a departure from 2012 when it was one of the most stable major currencies. During the Eurozone crisis the pound was a safe haven, but as certainty returns to the Eurozone and political risks of a ‘Brexit’ from the EU mount our currency will be in the firing line.  We could become the next sure fire bet for devaluation particularly if our deficit remains stubbornly high

If  the £ could come under a pressure this year, which would obviously be painful - raising the spectre of high interest rates and inflation.  Also the normal upside of devaluation, increasing exports, looks unlikely as the Eurozone in falling back into recession.

So why should the Pound be under pressure from a currency that is obviously broken?   Well, the main reason is that the markets don't believe this Government have the stomach for deficit reduction - with an election looming in 2 years this flaky coalition don't look like they have the collective will to eradicate our deficit.

This short term issue reminds us that the Pound, a currency around which there is much misguided passion, has performed unbelievably badly against the Euro over long periods.  Even since the Euro imploded we our currency has gone backwards and this points to future problems for the Pound. 

Historical currency exchange rates chart between EUR and GBP in ALL

If the Pound has done badly against the Euro against the benchmark of gold the Pound (along side the Mexican Peso) has performed worse than any other major currency - declining by 83% in the since 2001  (about the time Gordon Brown sold a huge chunk of the UK gold reserves). 

Some of the loonies who are convinced we should withdraw completely from Europe risk a lifetime of currency poverty for the UK as we get caught between gold and the global reserve currencies of the Dollar, the Renminbi and the Euro. 

Friday, 18 January 2013

Ending a small war

We are lucky that Britain has had very few mass shootings in modern times. During the latter half of the 20th century there were only two incidents -  The 1987 Hungerford massacre and in 1996 the Dunblane school massacre; each led to ringing public and political demands to restrict firearm use.

The result is that we have  the strictest firearms laws in the world.  The law bans most semi-automatic weapons, long-barrelled weapons the private possession of most handguns, if you want to shoot you have to join a club.  However, this did not stop the shootings in Durham in 2010 when Derrick Bird's rampage cost 13 lives and 11 other injured. Bird held legal permits for three shotguns and a rifle, so this regime isn't the perfect answer.

As a partial of these restriction (maybe) we have low rates of death caused by shootings  with 0.07 recorded intentional homicides committed with a firearm per 100,000 inhabitants in 2009 compared to the United States 3.0 (that 30,000 lives a year - a small war).

These changes to the law on gun ownership where a direct result of a public clamour demanding change.  It is therefore very strange for us to see the results in the graph below, which show the public attitudes to gun ownership in the US.

This should remind us Brits and Americans that although we speak the same language, we worship the same God (open to dispute), we enjoy the same culture (broadly) and we are somewhat related biologically  - in fact we are foreigners to each other as much as the Mongolians are foreigners to us in Britain!

Prior post on the same subject - so you know I am biased!

Who is to blame

A fascinating new poll that looks at the attitudes people have to the economic mess and where to apportion the 'blame' for public spending cuts.  Interestingly Ipsos MORI use the question 'who is to blame for the cuts to public servces', this presupposes that the cuts in services are a bad thing.

I for one would not be able to answer the question as it is obvious that the cuts are about the only good thing this government has achieved, so I can hardly blame them.

Anyway, on to the results, initially the survey (completed in March 2011) squarely put the blame on Labour (obviously right), the banks (nonsense) and global influences.

This month things have changed a bit with the coalition picking up a lot more of the flack.  Interestingly the one main movements has been the recognition that global events are really driving the need for small deficits, so by asking the audience they got a pretty good answer.  In fact the coalition should have scored 100% as they have made the cuts and thank god they have!

The full research can be found on this link

The good people at Ipsos MORI tell me that they do also ask support and opposition for the cuts and currently the results is about 50:50 in support and opposition.                 

Thursday, 17 January 2013

Mustang Sally

It’s time to be thankful for the string of terrible summers, which reduced the Barbeque frequency.  Without these damp and miserable summers we might have consumed a lot more hamburgers.News that a number of British supermarkets have been using Horse meat in ‘value’ hamburgers has created quite a bit of amusement in the press and twitter, two of my favourite tweets in the low  brow category are:
‘’Apparently they identified the horse meat in the Tesco burgers by analysing its D N Neigh’’.from John Prescott
Another goes - 29% of the meat content in Tesco's hamburgers turns out to be horse?! No wonder they gave me the trots!  Ho Ho! 

Having survived the terrors of CJD (mad cow disease) caused by feeding animal parts to cattle and sheep we now find this new pollution in our food chain.  This story also links back to the food waste story that was doing the rounds a week ago.

The food industry has been overly focused on volume production, from the farmers through the whole food chain the emphasis is on yields, pricing and through-put.  But the consumer is asking for something very different value, provenance, quality and choice.  We have done some limited research in our family and we have found that shopping local for your immediate needs is a much cheaper model that filling the trolley at Sainsbury.  I sense this is another nail in the coffin for our out of touch retailers and producers.

Time for a European Consensus

When Dave Cameron tells us that he is a ‘practical Eurosceptic’ should we be worried?  The answer is yes!
Whether you’re pro or not we need to have leadership on our place in or outside Europe.  It’s vital for us economically and geopolitically that there is consensus on the strategy this is not an issue for the Prime Minister alone.  So how can Dave slay this Goliath of a problem that has been pulling his Party apart for over 30 years.  Well, the thing is that Dave needs an ally he need ED!  Weirdly this could just be possible points as they agree on the important things, which are:
  1. They don't want to be in the Eurozone
  2. They do want access to the single market with the minimum of associated regulation
  3. They need to protect our critical industry (financial services) 
  4. They would like to expand the EU to increase the size of the single market
  5. They don't want to continue funding of the Common Agricultural Policy (CAP)
  6. They want to preserve or unique place in the world
  7. They would like to reduce our defence costs

Actually these are all things that we can get support on, from within the EU and from outside (the US). 


So Cameron and Miliband need to put their petty difference apart (there is hardly a cigarette paper between their views) and take the politics out of European membership.  We have managed this on some important issues over the years, Northern Ireland, Nuclear deterrents and  Afganistan, all being examples,  and we should do so on Europe. 
Whilst the chances of this happening are slim it would show real political maturity and it would have some fringe benefits for both party leaders.  For Cameron it would put UKIP on ice and for Miliband it would make Scottish devolution much less likely (Labour can never win an election without their Scottish MPs).  And both would enjoy bashing the LibDems who have a more Europhile view of the world.  This would then allow us to return to the heady days of proper two party politics, which is what they both need and want most.  But first they have to slay Goliath

Wednesday, 16 January 2013

We're all Zombies now

In the US failing businesses are typically let go by their owners and Banks. In the UK, where there is a stigma attached to bankruptcy, we hang on enduring a slow and painful death. The expression Zombie company comes from this state of limbo and this problem has got a number of economist excited. 

As we await the arrival of the new Governor for the Bank of England and perhaps a change in Monetary policy maybe we should consider a fiscal squeeze to kill off these Zombie - to use a gardening metaphor - prune now to create green shoots in the spring.  As the Telegraph tell us

One option is to tighten monetary policy by raising interest rates and putting QE into reverse. This is based on the Hayekian idea that the slow recovery is down to there being too many zombie companies being kept going by current monetary ease, which is blocking up the usual channels by which an economy heals and renews itself. Supposedly, what we need is a bout of creative destruction

The theory goes something like this: badly capitalised and poorly performing businesses are being propped up by the banks that don't want right down on their balance sheet.  This cautiousness also makes the banks less willing to offer growing business the cash they need.  The we are stuck in a vicious circle of low investment and low growth. To break this cycle the government could do more.  One idea is to use the quantitative easing to by up these distressed assets this would put money in to the real economy and get these Zombies off our back.

Bank of England data from Nov 2012 tells us that 3 in 10 companies were loss making in 2010 -11, but companies falling into administration has hardly risen.  These dead businesses are tying up capital and resources that more dynamic business would love to get their hands on.  Also this log-jam has slowed the rate of company births and also reduced the overall productivity of the economy. 

This is a massive drag on our economy as the chart below shows:  if we believe that 30% of our businesses are Zombies the scale of the problem is enormous.  Being conservative we could expect that the problem is most keenly felt in the smaller company sector.   If so this amounts to 3.8m people working in unproductive companies or 16% of the workforce.

1-100 employees




All business in UK




30% Zombies




Company owners need to be encouraged to wind things up rather than limp along, unable to shed staff due to the cost of redundancy but without the work required to keep their workforce busy.  Over to you George O

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