Tag Archives: Vince Cable

Banking, Britain, Business, Economic, Financial Markets, Government, Society

Banking practices of the Royal Bank of Scotland referred to City regulators…

DAMNING REPORTS

The latest accusations being levelled at the Royal Bank of Scotland are as incriminating as any in its recent chequered history.

Small and Medium Sized Enterprises (SMEs) have long complained that they cannot get the loans they need, despite protestations by the banks to the contrary. A newly released report from Sir Andrew Large, a former deputy governor of the Bank of England, on the bank’s small-business-lending, confirms that much of the criticism levied at the bank in recent times is justified and the taxpayer-rescued institution must explain why it has not been doing all it could to assist Britain’s economic recovery. In normal circumstances, such practices would be worrying enough for the newly installed chief executive of the bank, Ross McEwan.

But these are not normal circumstances; Mr McEwan is also faced with a more troubling contention. According to another published document from Lawrence Tomlinson – deemed a successful businessman and ‘entrepreneur in residence’ at the Department of Business – RBS may have sunk to even greater depths in its condescending and haughty treatment of Britain’s SMEs. Contemptuous, because not only has the bank been transferring perfectly legitimate and profitable companies into its high-risk Global Restructuring Group (GRG), but the West Register (the bank’s property division), has reportedly been acquiring their assets on the cheap after imposing deliberate and exorbitantly high fees on them. Many companies in this high-risk category, deemed perfectly viable, have been unable to pay these fees imposed and as such have found themselves having their assets taken over by the bank at heavily discounted prices.

Both these reports must be put into context. Prior to 2008, RBS had been reckless over a number of years in its dealings, over-extending loans to many small firms that did not justify such levels of confidence. As the bank now struggles to repair its balance sheet, bad debts are continually being written off and lending practices have been tightened.

The findings contained within these reports have left many feeling aghast, not least Mr Tomlinson himself. His inquiries and formal deliberations suggest something altogether more serious. Vince Cable, the Business Secretary, has acted quickly and sent the evidence to City regulators. For his part, Mr McEwan has called in the law firm Clifford Chance to conduct an internal review of the bank’s practices. Such deviant and acute methods would be inexcusable from any bank, but from one that is largely owned and controlled by the state makes matters even worse.

COMMENT & ANALYSIS

The claims made in Lawrence Tomlinson’s report into the way the Global Restructuring Group at the Royal Bank of Scotland has dealt with struggling enterprises are truly dire.

It rightly is a matter that needs to be examined by the regulators the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA).

Forcing struggling firms into insolvency when there may have been a chance of survival is bad enough. Ruthlessly seizing property and assets for its own gain is immoral and much worse.

Yet, should we be surprised? RBS had a hand in almost all the post-crisis scandals, including Libor fixing, interest rate swaps and the sale of payment protection insurance. The bank is also being sued by investors for failing fully to disclose the parlous state of its finances ahead of the £12bn rights issue to shareholders in 2008.

Tomlinson and the Department of Business also have some questions to answer. The in-situ ‘entrepreneur in residence’, for example, is a little mysterious. How was he chosen for this appointment, what is the scope of his role and how much did he tell civil servants and the Secretary of State, Vince Cable, about his own business affairs before he took on this rather curious role?

What also of the poor judgement by Tomlinson not to disclose that NatWest, RBS’s main operating offshoot, had granted him an overdraft and that in the last couple of years he was engaged in a major refinancing operation? Financial analysts will find it extraordinary that this was not considered a relevant factor either by Tomlinson or the Department for Business, and that it was not disclosed in the report. Making a strong case against the predatory behaviour of RBS is one thing, the dealings and judgments of Mr Tomlinson are clearly and significantly related.

The published accounts of Tomlinson’s business LNT Group are, even by the standards of many private empires, on the opaque side. They show a group that is indebted and making losses, with a host of intercompany relationships that are difficult to untangle.

The main product of Tomlinson’s dealings looks to be the design and building of new care homes, something the UK badly needs. But this is a notoriously difficult sector in which to operate – as was seen from the fate of Southern Cross – and management often has to choose between keeping costs under control and maintaining high standards of care.

Before giving Mr Tomlinson a government imprimatur one should trust that Vince Cable and his Department looked carefully at all his dealings before approving the appointment.

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Britain, Business, Government, History, Politics, Society

A Royal Mail sell off makes business sense but there are risks…

ROYAL MAIL PRIVATISATION

In a world that is fundamentally different to that of the 1980s, the announcement by the Government this week that it will proceed with a £3 billion sale of Royal Mail, is the right way forward for the business if it is to survive. Margaret Thatcher baulked at the prospect and was, famously, a privatisation too far. Mrs Thatcher remarked in the Eighties that she was ‘not prepared to have the Queen’s head privatised’. Later, Michael Heseltine, and more recently, Peter Mandelson, had their privatisation plans for Royal Mail scuppered by dissenting MPs in the House of Commons.

Vince Cable, the Business Secretary, however, notified the Stock Exchange this week of the Government’s intention to float the company, which will probably take place in November. The announcement represents a further expression of economic confidence as the economy slowly recovers from a deep and difficult 5-year recession. The privatisations of British Gas and British Airways, some three decades ago, coincided with a rising tide of opportunism. The parallels are noticeable as that is beginning to be felt once more.

The sale of Royal Mail affords something similar, too, to those earlier flotations: the spread of share ownership. More than 15,000 employees are to receive 10 per cent of the shares, with the rest being offered to institutional investors and ordinary members of the public.

While not without risks, the Government’s plan does have much to recommend it. Royal Mail has suffered from both chronic under-investment and deep-rooted inflexibility as the world around it has radically changed. Royal Mail is heavily unionised and has lumbered on, but the effect has been missed opportunities on a vast scale as rivals have been able to compete on the more lucrative parcel-delivery markets, even as the digital revolution and e-mail decimated traditional letter deliveries.

Moya Green, who took over in 2010, has brought Royal Mail back into the black, which was largely helped by the Government’s takeover of its £5 billion pension deficit. Following the flotation and barring unforeseen disasters, the first dividends, totalling £133 million, will be paid in July.

Despite the Government’s plan and opportunity, the Communication Workers Union has responded in time-honoured fashion by threatening to strike. How it envisages industrial action will help its members or Royal Mail is not wholly clear. The CWU will be holding a strike ballot early next month to protest against potential changes in pay and conditions.

Some of the union’s wider concerns will be shared by many, such as the protection of minimal universal services, guaranteeing a six days-a-week service at a uniform and affordable tariff. This has after all been the hallmark of Royal Mail since its inception and is much prized. But the legislation underpinning the privatisation, which passed through Parliament two years ago, protects the universal service and will remain enshrined in law. That guarantee has been reaffirmed by the Government following its announcement to privatise.

The digital and communication revolution has hit Royal Mail hard, with a fall of 10 million in the volume of letters sent daily. That decline has been arrested to some extent because of the huge increase in goods that are ordered online and need to be delivered.

The benefits of privatisation should not be underplayed. A fleeter-footed business, no longer restricted by government investment rules and with access to private capital, will be better placed to undertake the sweeping modernisation and rationalisation the organisation still needs to go through if it is to compete and vie for business successfully. Upon being privatised, Royal Mail would then not have to compete for scarce government funding which it currently does against other government departments and budgets, such as schools, hospitals, and the police.

But there are risks. The most immediate is that the shares are sold too cheaply, repeating the mistakes of previous flotations and leaving taxpayers cheated and resentful. Over the longer term, the challenge will be a regulatory one. Though it is almost certain that the Royal Mail will continue to be bound by the universal service obligation mandating a six-day nationwide postal delivery – bar senior management tinkering with a system that could loosen some of those ties – what is unclear is how such a costly service will be funded in the future. There may be hope that booming business elsewhere, such as through online shopping, will enable cross-subsidy funding. Critics have warned of unaffordable hikes in stamp prices or even state bailouts.

Mrs Thatcher’s unwillingness to sell off Royal Mail was not only a sentimental attachment to tradition, but sprang from a hard-headed assessment of the political pitfalls of tampering with a venerable national institution. While such hazards remain, a flotation of the Royal Mail is the right decision for the Treasury, and arguably the right decision for the organisation.

In predictable style, Labour has denounced the sale – yet, it was the last government that ended the Royal Mail monopoly and opened up the postal market to competition, thereby making the eventual privatisation inevitable.

Royal Mail can be categorised as one of the foundation stones of the modern British state, one that can trace its origins to 1516, when Henry VIII established the office of Master of the Posts. For it to remain an important part of the national story, it now needs to be a commercially viable venture that is ready and willing to compete in a market with far different demands and pressures.

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Britain, Business, Economic, Government, Society

Zero-hours employment contracts should be reformed, not outlawed…

ZERO HOURS CONTRACTS

In 2008 there were around 100,000 people employed on ‘zero-hours’ contracts offering them no guarantee of day-to-day work. That number has steadily risen since. In the last few days the Office for National Statistics upped its previous estimate by a quarter to 250,000. Other sources have quoted the figure nearer to one million, which equates to more than 3 per cent of the labour market.  Such employer tactics are not just restricted to sectors with sharply fluctuating demand such hospitality; the NHS, Amazon and large retail outlets such as sportsdirect.com also use them.

Employers benefit from arrangements under which they have a contingent workforce on call but must pay only when it is active. Some employees will appreciate the flexibility too, earning at times sums of money that may help them in their work-life balance, particularly as zero-hour contracts fluctuate with the seasons. More importantly still, in times of economic and financial uncertainty, when companies might otherwise not be hiring, it is better to have unpredictable and unsociable hours than no job at all. For small firms, in particular, such adaptability by having a flexible workforce will be a crucial factor for survival.

The problem, though, is that too often zero-hours contracts are a licence for employer exploitation. Commonly registered complaints include employees being required to be permanently available, despite there being no certainty of work. Many staff are also displeased with no entitlement to standard benefits such as maternity pay, sick pay or pension contributions. Holiday pay is another contentious area, although some firms offer discretionary holiday payments for some staff employed on zero-hours.

There is also an unhealthy concentration of power in the hands of individual departmental managers, who may allocate hours or withdraw them according to personal preference. In theory, at least, workers may turn down work, but most assume – probably rightly – that such a refusal would mean no further offers, with little or no hope of redress.

As estimates of the working-based concept inexorably rise, there have been calls for zero-hours contracts to be banned. The Business Secretary, Vince Cable MP – who is reviewing the situation – is resisting such moves. He is right to do so. The issue is not so much the contracts themselves, but more as to how and why they are used.

Consider a case in point: social care. Social care has long been disproportionately reliant on zero-hours contract arrangements because government funding is way too low to pay anything but meagre wages. As the population ages, and more people are expected to live longer into retirement, the situation will only worsen. By banning them, is to allow the specifics of one, very particular sector to skew a policy affecting all.

There are things, however, that should be done. The first priority for the Business Secretary will be to establish the true scale of the issue, and there is a strong case for reform. For instance, staff required to be always ‘on call’ should be compensated given the inconvenience involved. Basic employee rights should also be enforced. It might also be argued that businesses above a certain size, such as 50 employees, should be required by law to provide a minimum number of hours. For larger companies, what excuse do they have for passing on risks they can well afford?

It should come as no surprise that the number of zero-hours contracts has risen significantly since the recession of 2008. Economic stagnation has forced many firms to cut their workforces, but have required a degree of flexibility in the knowledge that expansion and growth would return. But as the outlook improves, it is essential that staff are given more typical terms. If the current spike in zero hours terms is no cyclical occurrence but, instead, is an emergence of a new and insecure, low-paid workforce, then the price of flexibility being asked of people will be too high.

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