27 September 2018
Lens on the Week
UK
BREXIT: A brush off in Salzburg as the EU dismisses the Chequers proposals as unworkable. Davis and the Brexiteers urging for an agreement along the lines of the EU’s recent deal with Canada which eliminates most tariffs. The EU concerned that this would result in goods getting in without duty and that the UK could be left in too strong a position. Hammond and Clark worried about a cliff edge. Labour indicating that it may well vote against any deal. Round and round it all goes with May telling the cabinet to hold their nerve. This one will run to the wire. Next big moment: the EU summit scheduled for 18 October, to be followed with another in mid–November if enough progress has been made.
LABOUR PARTY CONFERENCE: A possible revival of Clause IV, nationalisation of water, the post office, rail and energy; John McDonnell did not hold back. Labour would hit the people running these businesses too, firing senior executives and re-advertising their jobs at no more than 20 times the salary of the lowest paid employee. That isn’t nothing of course. With the national minimum wage at £7.83 (and presumably the top man will not be pegged to 20 x the rate for the apprentices) that comes out at £313 per hour, or just over £500,000 a year if the executive works 35 hours a week. Still, it rather depends how good he needs to be and how similar people are paid elsewhere.
There is also a proposal to hand 10% of private companies to employees. Employee participation at that level may sometimes be a good model for running a business, but across the board? Certainly it will be a surprise for investors who will have run their cash flows on the basis that they will get the profits. And who are those investors by the way? Pension funds among others? Didn’t Mr Brown raid pension funds once? Can anyone remember if that was a success?
On the Green agenda, Mr Corbyn promises that labour would work for zero carbon omissions by 2050, more windfarms, more solar panels, green taxes and public funding for insulation.
The proposal to elect a female deputy leader has now been dropped despite support from Tom Watson, Momentum and unions. It is reported that the party leadership was concerned at the prospect of a contest which would expose differences between factions, particularly over Brexit.
One Labour MP has suggested a general strike as a way of forcing a general election but senior members of the party have made it clear that this is not the official position. The party may push for another referendum in the event of a no deal exit from the EU.
International
IRAN: Twenty-nine people were killed and sixty injured when gunmen attacked a military parade in Ahvaz, the capital of Khuzestan province. Elderly people, women, children and at least 12 members of the elite Revolutionary Guard were among the dead. The gunmen were dressed in Revolutionary Guard uniforms and armed with automatic weapons. All four of them were killed. The Ahvaz National Resistance, an Arab separatist group based in the southwest of Iran, claimed responsibility. The USA condemned the attack as did the British ambassador to Tehran, who called it “a shocking terrorist attack”. Tehran, however, accused Britain and other European countries of “harbouring terrorists” (the Ahvaz National Resistance broadcast its claim on Iran International, a tv station based in London) and accused the USA, Israel and Gulf states of aiding them.
GERMANY: Chancellor Merkel’s authority suffered another blow this week when her own party, the Christian Democratic Union, voted to depose her right-hand man in the Bundestag, Volker Kauder, as parliamentary leader of the CDU and its Bavarian partner the CSU. This unexpected defeat appears to be a vote of no confidence in her leadership.
Earlier in the week, she found herself under fire yet again for her treatment of Hans-Georg Maasen, the spy chief accused of sharing the views of hard right groups. Last week he was removed from his position in the Bfv domestic spy agency after he contradicted the Chancellor’s condemnation of far-right excesses at Chemnitz. He was punished with a nice new position as ministerial secretary and a pay rise. The Social Democrat party – the CDU’s partners in Merkel’s coalition government – protested, and demanded that he be sacked. Interior minister Horst Seehofer (of the conservative CSU) refused to give him the chop, but it was agreed that his pay rise would be scrapped. The Chancellor is caught between her left wing Social Democrat allies and her conservative CSU allies, and the pressure is squeezing the life out of the government and her personal authority. Public approval of her CDU party is at its lowest ever.
Fears that the Bfv – Germany’s MI5 – is being infiltrated by the far-right were heightened when one of its intelligence officers was revealed to have taken part in the anti-immigration protests in Chemnitz, to have expressed sympathy with white supremacists and to have given security advice to Alternative for Germany.
BRASIL: Jair Bolsonaro, the far-right candidate in the presidential election, leads the polls after three weeks in hospital having narrowly escaped death when he was stabbed during a campaign rally. Mr Bolsonaro, a former army captain, is an admirer of the period of oppressive military rule from 1964 to 1985, and is infamous for remarks denigrating women and minorities. He is expected to leave the hospital next week.
Financial
TAKING THE BITTER MEDICINE: Novartis, the Swiss head quartered drugs company which recently took on Vas Narasimhan as chief executive has announced the closure of its plant at Grimsby, in Lincolnshire, with the loss of 800 jobs. This is a part of a programme to reduce costs in the business, but also first stage in Mr Narasimhan’s expressed intention to move away from mainstream drug making to gene therapy and related treatments, which offer much higher margins, and are regarded as the next big thing in medicine. The sub-riff of this is increasing pressure by health authorities and governments on the price of mainstream drug treatments, which is likely to lead to increased pressure on manufacturers’ margins. The problems are accentuated when patents expire and other manufacturers start to manufacture copies and compete, a problem especially facing Novartis which has a number of patents expiring soon. It wants to make sure it is protected as much as it can be by innovation to keep margins and dividends up, even if that leads in the shorter term to a smaller business. The cuts announced are part of 1,500 announced across the group this week, and Mr Narasimhan is rumoured to have more cuts lined up, together with sales of some peripheral business units.
AWAITING DEVELPMENTS: Another new boss, more cuts to the workforce. John Tonkiss, who has been in the top chair at builder McCarthy &Stone for just a month – in fact he was only formally ratified this week – is very quick with the scalpel. He announced that McC&S would abandon all its targets to grow the business – the previous management wanted to get up to about 3,000 new homes per year from currently over 2,000 – and concentrate on returns on capital. That means cutting costs and, in particular, employment at the builder, which specialises in mid-range accommodation for the over fifty years olds. He intends to cut construction costs and build more cheaply. That’s not how the marketing department may want to put it of course, but they too will be cut back, to reflect the smaller scale of the business. This year Mr Tonkiss expects to build about 2,200 houses for sale, and possibly less next year, but saving £40m per annum will push return on capital up, as long as the sales market remains steady, to about 15%. The stock market liked the idea and the share was up 8% on the day of the announcement.
UPWARDS AND ONWARDS: We haven’t visited an old favourite of this column, the oil price, recently. Oil seems to have been getting on fine recently without us, and this week reached a four year high of US$82 a barrel. That sort of rise suggests a coming impact on the general economy – we were at $25 not three years ago after all – and has also got the chartists excited about the possibility of hitting $100 early next year – if not late this. The problem is on the supply side, where USA sanctions on Iran are starting to bite, along with, it seems, OPEC managing to keep its foot on the supply pipe. Much now depends on how the winter is. There are not so many things that do drive up demand now – an increasing amount of energy is coming from renewables, engines are much more efficient than they used to be and have (green) electrical assistance. In the long run the current pricing is almost certainly unsustainable simply because of the ever weakening demand side. But in the meantime, those fuel station visits are going to get more painful.
