Archive for janvier, 2011

Squeezed Middle

Lundi, janvier 24th, 2011

One of the first sound-bite attempts of Ed. Milliband, as the newly elected Labour party leader, focussed on the Squeezed Middle of the British electorate for his future national election prospects, although he lost some credibility when questioned due to not being able to more precisely define what he meant by this part of the population. Indeed, the squeezed middle according to Mr Milliband seemed to include anyone neither very rich nor very poor i.e. just about everybody else or perhaps the 75% in the middle who also contribute around the same proportion of total income tax taken by the government. It is interesting then that Reuters today (24 January, 2011) issued a report on Life in Europe’’s Squeezed Middle.
In summary, even as Europe has begun to grow again, the global financial crisis which has adversely impacted tens of millions over the last three years is still influencing people and households to watch their budgets, save more and avoid over-extending. The plans and hopes of a generation are seen as having been scaled back and, even if the general economic situation improves, will affect the continent of Europe for years to come. Examples of the experiences so far of austerity affecting relatively affluent people are described for Spain, Germany, Greece, Romania and Britain. In Spain, working Spaniards are facing the fact that they will not be as rich as their parents. Germany is booming again but the experience of being forced to work shorter hours to keep more people employed has left many workers scarred. In Greece, there is a growing wave of emigration. For those Romanians who managed to avoid getting into too much debt from the wide availability of cheap credit, when Romania was the fastest growing economy in the EU two years ago, there are hopes for a better year ahead.
Addressing Britain, the example from the squeezed middle is a young mother with two children and currently unemployed but, thanks to the British policy of mixing affordable social housing with high-end real estate, receiving a subsidy from an independent, not-for-profit housing association to live with her family in one of the most expensive areas of London, next to Westminster Abbey and Big Ben. She, her partner and two children are currently insulated from the impact of the cap on housing benefit introduced by the government as part of the £81 billion public spending cuts. However, their monthly rent of £600 is only a third of what they could be charged on the private market if they were forced to move. That said their annual income of £32,000, just above the national average, comes largely from her partner who works for the London police but is concerned about the security of his job, given the 300,000 public sector positions expected to disappear with government budget cuts, including thousands in the police force. Even if he keeps his job, he will find his pay frozen for the next two years and be paying more into his pension fund. This squeezed middle family is, therefore, already cutting back on unnecessary expenditure before they start feeling the effects of the government cuts.
Considering the examples taken by the Reuters reporters, the squeezed middle covers a rather broad spectrum of which one imagines Conservative party strategists are already well aware. It also seems apparent that although the Office of National Statistics is attributing to the bad weather the unexpected 0.5% contraction in UK GDP for the last 3 months of 2010, the economy currently appears to be stagnating with the squeezed middle concerned about the future and, therefore, cutting back and spending less, offsetting somewhat e.g. the 1% or so growth in manufacturing.

Bankers, Bonuses & Competition

Mercredi, janvier 19th, 2011

Despite the financial downturn and the continuing public furore, JPMorgan last week announced it was paying its investment bankers some £6 billion in pay and bonuses for 2009. Citigroup, Morgan Stanley & Goldman Sachs will issue their results and bonus plans this week, the latter investment bank expected to announce a pay and bonus pool of around £8.5 billion. The results of British banks will be announced in February, the total associated bonus pool estimated at some £7 billion. Even state-owned Royal Bank of Scotland (RBS) is anticipated to pay its investment banking staff bonuses totalling £1 billion.
Excluding the state, the major shareholders in British banks are institutions such as large insurance groups or fund managers (e.g. on behalf of major pension funds), with those holding the biggest stakes including Legal & General, Axa, Fidelity, Standard Life, Scottish Widows, M&G (of Prudential), Aviva and Schroders. Together they hold around 15% of Barclays, 11% of HSBC, and 7% of Lloyds. These institutions are not necessarily content with the level of bonuses being paid out by the banks because they are also aware that these banks are still rebuilding their capital bases. However, they find themselves at the same time trapped by the demands of a market in which the banks have to pay big bonuses or lose staff to their competitors. Institutions are, therefore, looking to the politicians to find a long term solution to what could be considered a structural issue possibly requiring an overhaul of the banking industry, including the key aspect of competition.
The problem for the politicians, however, is that they cannot risk driving the wealth-creating financial sector offshore, its importance to the UK economy having increased as the proportion contributed by manufacturing has progressively decreased before and during the last 13 years of Labour government. Indeed the banks will pay an estimated £20 billion in tax this year. The Prime Minister has, therefore, called for an end to verbal attacks on the banks and blaming them for all the ills of the economy; the bonus tax demanded by his Liberal Democrat partners in government has also not been taken any further at present. Behind the scenes, the on-going negotiations (code-named Project Merlin) between the government and the banks continue to focus on increased lending to small businesses & restrictions on bonuses, in return.
In fact, bank bonus payments on average are expected to be 20% to 30% down on the year before, although this is said to be mainly due to the trading profits of the big investment banks having collapsed last year. The bankers are also seemingly feeling secure enough to suggest that the period of remorse and apology (e.g. of waiving of bonuses and giving to charity) now needs to end, as evidenced by the performance of Bob Diamond, the new Chief Executive of Barclays, before the Commons Treasury Committee. In addition, new regulations in the UK now mean that over 50% of a bonus must be paid in shares and deferred for 3-5 years, half of the other 50% in cash also deferred but linked to performance targets and the remaining cash then falling into the 50% tax band for top earners, with many bankers now given large increases in basic salary to compensate. This reflects the real world within which, however, the public perception also remains strong that bankers still earn significantly more than other professions, despite the taxpayer having contributed hundreds of billions of pounds to rescue the financial system and large numbers of public sector workers continue to lose their jobs, in what also seems a very unfair world.
Of course, if a major bank or open trading nation such as the UK chose to go against the global market, each would be likely to suffer financially and this then points to the need for a global agreement on financial market regulation. In the absence of this, some in the media point out that the banks make large profits mainly due to seriously overcharging corporate clients, companies which are in turn owned by the same big shareholders. Not all of these profits are returned as dividends to these shareholders, a large part being siphoned off to pay bonuses. There are also apparently, suspiciously similar charges for financial services such as underwriting of share issues, while the number of major players in the market has been reduced by banking failures during the financial crisis. Perhaps the Independent Commission on Banking which is looking into how to improve competition in the financial services industry will ultimately feel the need for a full-scale Competition Commission inquiry, as real competition would be expected to squeeze profits and the associated pay & bonuses. It would also be expected to reduce the level of bonuses paid out to (as admitted by at least one senior banker) quite mediocre talent, who surround the stars that really bring in enormous amounts of business and may well indeed deserve their extraordinary remuneration.

Educational Excellence

Mardi, janvier 11th, 2011

It seems that although only some 7% of all secondary school pupils in the UK are privately educated and around 14% sitting A-level examinations are from private/independent schools, these young people comprise 25% of all university entrants and over 40% for Oxford and Cambridge universities. Nicola Dandridge, Chief Executive of Universities UK, considers this more the result of the lower A-level attainment performance of state school pupils rather than accepting the position adopted by Simon Hughes, the Liberal Democrat deputy leader and also now the Coalition government advisor on access to higher education. Mr Hughes sees the universities as having failed to take more students from disadvantaged backgrounds and has suggested universities should aim to limit their privately-educated intake to the same (i.e. 7 or 14%) proportion of all (private plus state), secondary school pupils.
While still in opposition, the Conservatives pledged to transform these underperforming state schools through the creation of Free Schools, based on experience from such reforms in Sweden and the US. Now in Coalition government, it becomes necessary to bring their Liberal Democrat partners within a common Free School policy drive but which takes time. Considering the strong and seemingly inflexible union opposition already lined up against the practical implementation of the Free Schools policy, and the key importance to the UK of excellence in education for its young people, the challenge for David Cameron might then be seen by some as having a certain resonance with the situation Mrs Thatcher faced with the National Union of Miners. Those who disagree with this policy of Michael Gove, the Education Secretary, include the National Union of Teachers (NUT), another teaching union the NASUWT and the Anti-Academies Alliance (AAA), backed by others such as the RMT transport union and its general secretary Bob Crow, together with the Fire Brigades Union and the GMB.
Already in a letter to the Times last Sunday, Christine Blower, General Secretary of the NUT, is citing the decline in educational standards in Sweden and quoting Bertil Ostberg, the Swedish Education Minister, as having declared that their free schools (three-quarters of which are run by profit-making companies) had been a failure and warning the British government not to introduce them. Ms Blower also says that the NUT is not complacent about standards in schools but suggests a better example to follow in improving education would be Finland, top of all international educational comparison tables and with a truly comprehensive system.
It is good to learn that Michael Gove is already responding to the challenge and planning a high-profile promotion of Free Schools around the Country, to accelerate progress and counter the opposition of unions and hostile councils on the ground. In the meantime, Alasdair Smith, National Secretary of the AAA, accuses Labour of complacency, considering the scale of what he sees happening. There again, it was in the year 2000 that David Blunkett for Labour first announced the creation of City Academies, similar to Free Schools in being outside local council control and also campaigned against by the educational establishment. Tony Blair, Labour Prime Minister at the time, wanted these Academies to replace the (his) quote - Bog Standard - unquote Comprehensive Schools, which have resulted from nearly 50 years of decline in educational excellence in the UK.

Academies/Free Schools

Jeudi, janvier 6th, 2011

The National Union of Teachers (NUT) wants the government to cancel its plans for so-called Free Schools or Academies and (to quote) stop playing with the educational future of the Country. Such state-funded schools are not wanted or needed and that parents have not been consulted enough (unquote).
It will be recalled that Free Schools, independent of local authorities, can be set up by e.g. charities, universities, businesses, educational groups, teachers & groups of parents. The first 25 are scheduled to open across 22 local authorities from September of this year. However, an NUT-commissioned YouGov survey of 1,021 parents in Free School-approved locations, found 31% were against setting up one in their area, 26% were in favour and 29% were neutral. Perhaps more importantly and reflecting a lack of communication & drive on the part of the government, 76% of the parents polled were unaware a Free School was planned in their area and 72% said they had not been given the opportunity to give their opinion on the matter.
Up against this representation of the educational establishment we have Michael Gove, the Secretary of State for Education, who believes in the merits of traditional teaching and rigorous testing and has a vision of making every state school an Academy or Free School. In terms of his progress to date, it was reported on BBC Radio 4 today that only around 50% of schools were planning to achieve Academy or Free School status. It then becomes almost a question of which side of the argument views this as a wine glass half-full or half-empty situation, with Mr Gove seeming to represent the more positive (half-full wine glass) side and expressing himself very satisfied with progress so far. Indeed, also putting a more positive view of the situation, we have Nick Boles the Conservative MP for Grantham & Stamford, writing in the Times of 4th January that the early measures of the Coalition government are making an impact. It took the previous Labour government seven years to set up 200 Academies but the Coalition has already created 200 more in seven months! He is also advocating that as more schools become Academies, the government should actively encourage them to form or join chains of schools such as the Priory Federation in Lincolnshire or the Harris Federation of South London Schools, which show that pooling of resources can facilitate attracting outstanding leadership and also release money to improve the facilities and opportunities for pupils.
However, to really combat entrenched interests within the educational establishment requires political courage says Chris Woodhead, former Chief Inspector of Schools and writing in the Sunday Times of 2nd January. Mr Gove also has to be more radical and ruthless if he wants a more thoughtful, open-minded profession prepared to engage with his agenda. As an example of a weakness of policy (perhaps for unavoidable political reasons) that he perceives as undermining delivery of the Gove reforms, Mr Woodhead cites the refusal of Mr Gove to allow for-profit companies to participate in his Free Schools initiative. Here Chris Woodhead declares an interest as he is also chairman of the private schools group Cognita; however, he quotes a recent report published by the Institute of Economic Affairs (iea.org.uk) on the Swedish Free School reforms, which shows that without the involvement of commercial companies there is very little chance of any real momentum being developed. In Sweden these for-profit schools delivered better results for pupils from the poorest backgrounds than either state schools or non-profit schools. It seems evident then that e.g. in tough areas with high levels of poverty and low levels of parental education, the profit motive in education can make a beneficial difference. In addition, since for-profit schools are not allowed to charge top-up fees, their profits must come from running their schools more efficiently than state schools to meet the demands of parents (i.e. their customers) and able to suitably reward their vital resource of good teachers. Mr Woodhead thinks this should appeal to a Coalition government which claims to value private enterprise.
On the Gove ambition to make every state school an Academy or Free School, Mr Woodhead also quotes evidence from the 1990s indicating that most schools will never opt to leave the protection of their local authority (but which now seems somewhat contradicted by the latest report quoted earlier of 50% planning Academy or Free School status). He, therefore, proposes that instead of Mr Gove leaving each school to come to its own decision – in Surrey (within which his constituency also falls) for example, only one of 400 schools has taken up his invitation – effective legislation is essential to push schools to function as independent institutions. There is also a corresponding need to support those schools and teachers sympathetic to the Gove vision and whose reciprocal support is again critical to its practical implementation.