Tuesday, 31 January 2012

Hester waiver 'won't fix broken system'

From the Morning Star

John Millington

Financial-sector unions and banking experts welcomed today RBS chief executive Stephen Hester's decision to waive his bonus - but pointed out that "systematic theft" was still rife in the banking system.

Mr Hester finally bowed to intense political and public pressure to forfeit his bonus of almost £1 million on Sunday night.

The bank - which is 83 per cent owned by the public - has confirmed that the 3.6-million share package worth £963,000 would not be paid to the millionaire banker.

Unite union national officer David Fleming said Mr Hester's move was "better late than never" but added: "There's a long way for RBS to go in proving its credentials as a responsible organisation to its customers and also to its thousands of staff."

Banking experts pointed out that waiving the bonus would not deal with the structural inequalities in the banking system.

Left Economics Advisory Panel co-ordinator Andrew Fisher said the move would "still leave him on a basic salary 5,000 per cent higher than the average civil servant.

"Last year Hester took home a total package worth £7.7m and it's good that Labour acted to prevent a repeat of this robbery again this year."

University of Wolverhampton professor Roger Seifert said: "The government wants the issue to go away and therefore creates a diversion about one man and his bonus, but we need to focus on the accountability of state-owned enterprises, on the real take-home pay of most workers."

And despite Prime Minister David Cameron's claim to be tough on bankers a government spokeswoman confirmed that Downing Street would not block future RBS bonuses.

"We are not going to micro-manage bonuses," she told the BBC. "They are doing a good job and making good progress."

But Labour leader Ed Miliband, who had planned to force a Commons vote calling for Mr Hester to be stripped of his bonus, said the debate about "executive pay and responsible capitalism is only beginning."

David Hillman of the Robin Hood Tax campaign said: "We cannot rely on the consciences of bankers to relinquish their excessive pay," pointing out that RBS was "just the tip of the iceberg."

Saturday, 28 January 2012

Osborne 'delusional' on City slicker regulation

From the Morning Star

John Millington

Left economists labelled Chancellor George Osborne "chronically delusional" today after he attempted to play the strong man by promising tough financial regulation.

There will be "no ambiguity about who is in charge" when taxpayers' money is at risk, Mr Osborne insisted in a keynote speech at the World Economic Forum in Davos.

The Chancellor unveiled new laws to boost the power of the Treasury during times of financial crisis.

The measure is part of a wide package of reforms which will scrap the Financial Services Authority and introduce a new regulatory framework made up of the Financial Policy Committee, Prudential Regulation Authority and Financial Conduct Authority.

The Financial Services Bill, published after nearly two years of consultation, gives the Chancellor the power to veto decisions made by the Bank of England when dealing with bank bailouts and other interventions, in an attempt to avoid a repeat of the Northern Rock collapse.

"I hope that we will never again see the paralysis and confusion that did so much damage when the latest crisis hit," he said.

The Bill means that in a crisis, when taxpayers' money is at risk, both the responsibility and the power to act will rest with the Chancellor of the day.

But LEAP co-ordinator Andrew Fisher was left unimpressed by Mr Osborne's gesturing.

"The reform of the finance sector is not a question of better oversight to ensure functioning competitive markets, but of democratic control to ensure markets are subordinated to social need,' he said.

"The failure despite ministerial begging to get even government-owned banks to lend, and the ineffective quantitative easing policy, are the desperate acts of those clinging to an outdated and failed ideology.

"We need public ownership of the banks and democratic control of credit issuance."

Friday, 27 January 2012

Clegg sheds crocodile tears for the poor

From today's Morning Star

Nick Clegg shed crocodile tears for struggling families today as he called for a tax cut for low earners to be brought forward.

The Deputy Prime Minister said he wanted the coalition to "go further and faster" in exempting those earning under £10,000 from paying income tax.

He said in a speech to the Resolution Foundation think tank that "bluntly the pressure on family finances is reaching boiling point."

Raising the personal allowance to £10,000 was a Lib Dem manifesto pledge but it is being delivered in stages and will not be complete until 2015.

"Household budgets are approaching a state of emergency and the government needs a rapid response," Mr Clegg admitted.

His Tory bedfellows will see his comments as a daring breach of Cabinet conduct where declarations on tax are generally left to the Treasury.

Mr Clegg also took a pot shot at the tax policies of the "traditional left," sarcastically labelling it "a badge of socialist success."

"Socialists will support a penal rate of tax on the highest earners simply because it makes them poorer," he sneered.

But Left Economics Advisory Panel Co-ordinator Andrew Fisher argued that Mr Clegg's speech was little more than crocodile tears.

He said: "Clegg refers to the squeeze on low-paid people as if that had nothing to do with the pay freezes, benefit and tax credit cuts, the VAT rise and all the other regressive measures that his government introduced while doing nothing about soaring food, energy, fuel and rail costs.

"Raising the personal allowance for income tax to £10,000 is an admirable aim.

"But it should be coupled with redistributive measures at the other end of the pay scale such as reducing the 50 per cent tax rate to £100,000 and adding in a 60 per cent rate at £150,000.

"Clegg's government is also halfway through cutting corporation tax from 28 per cent to 23 per cent, and this should be reversed.

"Clegg rails against tax as a badge of socialist success - and indeed it is.

"Higher taxes were essential in building and maintaining the welfare state, the NHS, free state education and council housing - all under threat from Clegg's corporate giveaway government."

Also a good Guardian editorial today on this subject.

Thursday, 19 January 2012

‘Empowering’ shareholders won’t revolutionise corporate culture

Prem Sikka
Executive remuneration is out of control in the United Kingdom. The final report by the High Pay Commission concluded that “there is rarely a link between directors’ incentives and the way a company performs. In the past 10 years, the average annual bonus for FTSE 350 directors went up by 187% and the average year-end share price declined by 71%”. The average pay levels of workers rose only by 10% during the same period.

The Cameron Government is now promising to clamp down on executive pay. Details will be announced later in the year, but the key idea is to empower shareholders. The British government could follow the Australian two-strikes law, which ensures that a 25% vote against executives' remuneration packages at two consecutive annual general meetings triggers a compulsory re-election of the board. However, laws developed in particular social and economic contexts can rarely be exported.

The UK government assumes shareholders are the owners and main risk-bearers of companies. This is not the case. Most shareholders are traders and speculators and have little long-term interest in invigilating companies.

The average duration of share holding in UK-listed companies has fallen from about five years in the mid-1960s and about two years in the 1980s to about 7.5 months at the end of 2007. The average shareholding periods for banks has fallen from about three years in 1998 to about three months in 2008. This does not suggest any long-term commitment to companies or corporate issues.

Since the 1980s, governments have privatised state-owned industries and given shares to UK citizens at knockdown prices. Governments have given tax incentives to individuals to buy shares in companies. None of this has expanded share ownership.

The table below shows the structure of shareholding in the UK listed companies.

The biggest change is the massive reduction is share ownership by individuals and the increase in foreign ownership by rich oligarchs, sheikhs, sovereign funds, hedge funds, offshore funds and private equity investors. Even 100 years ago, foreign companies were listed on the London Stock Exchange and UK and foreign individuals could hold shares in them. But with the increased mobility of money, their numbers have expanded.

There is little evidence to show they are interested in corporate governance issues. If foreign investors choose not to vote on executive remuneration packages, the UK government is hardly in a position to impose sanctions.

Individuals also indirectly hold shares through insurance companies, pensions funds and banks, but in these cases they do not have the right to appoint directors or mandate managers of these organisations to vote on AGM resolutions. Besides, corporate pay levels elsewhere form the benchmark for remuneration of mangers of financial institutions. Their incentives for curbing executive pay are low.

At the moment, the outcome of AGM resolutions is advisory rather than binding on directors. Even if that was changed and shareholders mustered some courage to shackle directors, they can easily be defeated because directors and their representatives are permitted to cast thousands of delegated proxy votes.

Voting rights should be given to other risk-bearers too and to those with a long-term interest in companies. Banks provide an interesting example. The leverage ratio of many banks shows that shareholders do not bear the main risks or provide most of the risk capital.

A bank with 10 billion pounds of equity and 100 billion pounds of assets in its balance sheet is said to have a leverage ratio of 10:1. In other words, for every 10 pounds of investment by shareholders, it borrowed 90 pounds.

In 2007, Barclays Bank had a leverage of around 39:1; Royal Bank of Scotland 31.2:1; HSBC 21.3:1; Lloyd’s TSB 31:1, Lehman Brothers 31:1 and Bear Stearns 33:1. Most of the long-term finance to banks is provided by savers and lenders.

Therefore, they should have the right to vote on executive remuneration, as well as for appointing directors. Employees have a long-term interest in the wellbeing of companies as their jobs and pensions depend on them. They are in a strong position to know whether the bosses deserve high rewards and should the right to vote too.

As UK politics is drifting to the right, democratisation of corporations is unlikely. Shareholder empowerment is unlikely to solve the problem of excessive executive pay.

This article first appeared on The Conversation website

Wednesday, 18 January 2012

Unemployment and its consensus economics

Figures out today show unemployment has risen again over the last quarter by 118,000 to an 18 year high of 2.69 million. The unemployment rate is now 8.4%.

But even these grim figures don't tell the full horror: if you add those who are working part-time who want full-time work, and those in temporary jobs who want permanent work, it means 4.6m are looking for work.

Sadly the number of vacancies in the economy has declined by 18,000 over the last year to just 463,000: this means there are, on average, ten people chasing every job.

For young people, the picture is even more grim: youth unemployment rose to 22.3% - a new record high. The number of 16 and 17 year olds out of work hit a staggering 38.4%, while nearly a quarter of a million 16-24 year olds have been unemployed for over a year.

This is an absolute condemnation, proof beyond reasonable doubt, that austerity is failing - and yet Ed Balls and Ed Miliband have just embraced it. The latter embarrassed as David Cameron quoted the former back him, "we’re going to have to keep all these cuts" at Prime Minister's Questions.

Now, you might make all sorts of arguments about the Eurozone, unseasonal weather, or that rioters have scared away shoppers, but the data doesn't lie. If the above isn't proof enough, consider this: in the past year UK unemployment has risen by 0.5%, Eurozone unemployment by 0.3%.

This is coming from George Osborne's homegrown economic disaster: in the last quarter there were 67,000 public sector job losses, compared with only 5,000 created in the private sector (four times as big). That is having a disproportionate impact on women, for whom unemployment has shot up by over 20% in the last year.

Despite allegedly ringfencing health and education, in the last quarter alone 8,000 jobs have been lost in the NHS and 30,000 in education - the majority of whom will have been women.

Pay restraint is also having its effect: with the average pay increase just 1.9% over the last year, while inflation is at 4.8%. Osborne's pay freeze, to be followed by pay restraint at a maximum of 1% is now endorsed by Ed Balls.

Yet Balls-the-credible said at the weekend, "There is no way we should be arguing for higher pay". Really Ed? And this man was considered the economics brains behind Gordon Brown.

That pay restraint is having a knock-on effect on the private sector because it is hitting disposable incomes. It also explains why people are increasingly falling into arrears and defaulting on loans and mortgages.

Austerity isn't working. The cuts are wrong and need to be opposed and reversed or we will have entered a death spiral a la Greece by 2015.

Tuesday, 17 January 2012

Two Eds aren't better than none

It's been a demoralising spectacle watching senior Labour politicians attempt to announce their 'fiscal credibility'.

Far from being on the side of the economics gurus, the two Eds have lined up with George Osborne as austerity enthusiasts - to be condemned by Nobel Prize winning economist Joseph Stiglitz.

The last time we had a consensus such as this was the 1930s, and Unite general secretary Len McCluskey was right to invoke the spectre of Philip Snowden in his Guardian article today excoriating the two Eds.

McCluskey's riposte was in response to Ed Balls' Fabian speech on Saturday, and various media interviews, during which he said: "There is no way we should be arguing for higher pay", and supported the pay freeze followed by pay restraint policy of the Tory-led coalition.

Indeed with failing consumer demand and rising living costs, why would higher pay be important? Best to just drive wages down to ensure what? More loan and mortgage defaults, less consumer demand and VAT revenues, lower income tax revenues, more stress, anxiety and suicides (that inevitably accompany money worries).

Ed Miliband went on the offensive via Twitter today (as Len McCluskey started trending). Ed tweeted:
"Len McCluskey is entitled to his views but he's wrong. Im changing Labour so we can deliver fairness w less money.That means tough decisions"

Less money? Really? Rolls Royce and Bentley sales are up over 30% in the last year, while executive pay shot up by 49%. The tax gap is £120bn, the money's there - you just need to get it.

Tough decisions? Really? Why not take a 'tough decision' to scrap Trident, cancel Osborne's proposed reductions in Corporation Tax or raise the 50% tax rate to 60%?

So the two Eds weren't being credible, just capitulating to the Tories failed economics of austerity. They weren't making 'tough decisions' either, just ones already written for them by the leader writers of the Times and the Telegraph.