18 October 2018
Lens on the Week
UK
BREXIT: Tusk thinks it is all going down the drain. French and German diplomats believe that an agreement on the Irish question is possible. The former head of MI6 accuses Olly Robbins of putting British security projects under EU control. Philip Hammond and Greg Clark are said to favour a longer transitional period. Mrs May sticks to her guns, intransigently or courageously according to taste. What is really going on? Fans of “spot the Ball” competitions must be in seventh heaven, and future historians will analyse the doing of these few weeks in the way that they dissect the duplicitous diplomacy of Charles II or the events running up to the beginning of the Second World War. Let us hope that the protagonists are keeping diaries.
For us, however, it has all become opaque, a fog of war through which we see a glimmer of light now and then. What is real and what is negotiating position? Among the more fatuous comments are those from people who believe that Mrs May should be being conciliatory. Not only is that a bad negotiating tactic – the usual approach is to remain firm until very close to the end – but it would be bad domestic politics too. Mrs May has to sell the deal to the public and Parliament on the basis that it is the best that can be obtained. How quick her enemies would be to point out that she had given ground too early.
This column has always believed that any settlement would be preceded by a period of increasing chaos, so we do not think that the current difficulties point to a ‘no deal’ exit. That isn’t to say that there will necessarily be a deal, merely that the current confusion points neither one way nor the other. We will, however, risk one prediction. If Mrs May does a deal it will inevitably disappoint many of the more extreme Brexiteers in her party. Even so, neither they, the Opposition nor anyone else will dare to vote the deal down and accept the responsibility of forcing a ‘no deal’ exit.
UNIVERSAL CREDITS: It is believed that the Commons vote on the legislation required to transfer 4,000,000 claimants onto universal credit is to be deferred because of opposition from Conservative MPs. This would delay large-scale transition to November 2020. The project as a whole is in something of a mess. That is partly because the Treasury under George Osborne decided to cut funding for the programme by £2 billion in 2016, and partly because the pilot implementation has gone badly. It is possible that Philip Hammond will deal with the first point by committing more funds in the budget. Nonetheless, the whole idea of a late first payments supported by loans sounds like “patch and mend”, so a bit of sitting back and thinking may not be a bad thing.
At the same time the project has picked up bad publicity due to gagging clauses which prevent charities involved in implementing it from criticising the Work and Pensions Secretary, who is in charge. There are two sides to this, even if we ignore the hackneyed ranting about “telling truth to power.” On the one hand there is the worry that clauses of this sort can be used to hide nefarious deeds or gross incompetence. The charities have a great deal of expert knowledge and are well placed to see what is going wrong. On the other, mistakes will inevitably be made in a big project and it is not helpful to have those involved in implementation (many of whom will inevitably have a political agenda) vapouring off about it before they can be corrected. Perhaps the best thing would be a clause which prevents anything being said during the project but allows all concerned to have their say afterwards.
SPEAKER: Dame Margaret Beckett is a sensible woman. Asked by the BBC whether the need to keep Bercow in place over the Brexit negotiations trumped allegations of abuse, she replied “But yes, if it comes to it, the constitutional future of this country, the most difficult decision we’ve made possibly for hundreds of years, yes, it trumps bad behaviour.” A politician who puts the nation’s interest before more fashionable issues and is not ashamed to say so. Well done, Madam!
International
GERMANY: Chancellor Merkel and her government suffered another blow this week. Her CDU party’s partner the CSU suffered heavy losses in elections in its own back yard, Bavaria; down by a quarter, to 35% of the vote from 48%. The result translates into a loss of 16 seats, down from 101 to 85, and a loss of their absolute majority. It’s the CSU’s worst result in 65 years.
Horst Seehofer, the CSU’s leader and Merkel’s minister of the interior, has been moving his conservative party even further to the right in recent months in a bid to steal the AfD’s thunder and voters in this election. It has proven to be a disastrous tactic. It lost him votes to the Greens, who moved to occupy the vacated centre ground; their share of the vote moved up from 8.6% to 18.5%, and their share of the seats moved up from 18 to 38. The AfD won only 11% (22 seats).
Mr Seehofer’s increasingly tough line on immigration and law and order has frequently brought him into serious conflict with the Chancellor in recent months. One silver lining to the election results for Ms Merkel is that she probably won’t have to put up with him for much longer. He is unlikely to survive last weekend’s debacle. However, her coalition looks in even more danger than ever – her other partner, the SPD, also suffered historic losses, losing nearly half its seats (down to 22 from 42).
Merkel’s CDU does not contest elections in Bavaria, leaving the ground clear for its CSU partner which originates in that state; elsewhere the CDU/CSU campaign as one.
CANADA: This week, Canada is set to become the largest country to allow an open market in cannabis. About 100 shops (some of them state owned) will open for business, selling products supplied by about 120 growers. Parliament passed the Cannabis Act in June, which permits citizens over the age of 18 to buy the recreational drug online or in shops and to possess up to 30g of it in public, shops to sell it, licensed growers to produce it and banks to service the industry.
USA: The residents and police of New York are congratulating themselves on their first murder-free weekend in decades. On Thursday 11 October, a 25 year old man was shot in Brooklyn by an assailant who managed to crash the getaway vehicle into an ambulance. On Monday 15 October, a 20 year old man was shot in the Bronx. In the days inbetween, however, there was not a single murder or even a shooting in the whole of the city.
Financial
PLAYING THE LONG GAME: It’s been a difficult year for high street retail, with the latest bad news being the entering into administration of fashion retailer Coast. But one retailer is not to be bowed , in spite of posting record losses for 2107. Hamleys, the London, Regent Street toyshop, said it lost £12m last year, but explained that a lot of that was restructuring and related costs on trimming its international network. Overall, it said, the outlook is positive with comparable turnover this year up 2.7% to date. Hamleys has 130 stores around the world, 50 in India, but most of those are franchises, where the financial risk largely sits with the local owner and Hamleys collects a licence fee for use of its name and some centralised services. The restructuring has seen many of the directly owned stores go, mostly in Scandinavia, but the franchise network expand. The business is owned by the Chinese investor C.Banner, whose rescue bid for its subsidiary House of Fraser failed earlier this year, but C.Banner continues to strongly support Hamleys and has continued to provide shareholder loans on favourable terms to get the restructuring through.
SMOKE GETS IN THEIR EYES: It’s nice to be able to report that not all things in retail are going badly. From Canada, news of retail ventures that look set for happiness; from this week cannabis has been made legal across the country, though the distribution and sale of the product is left to the discretion of each province. In Ontario, (whose elections we covered in the Shaw Sheet earlier this year) the previous Liberal administration had, rather belying their name, decided that the process must be state controlled, with, for one instance, just one outlet in Toronto. But the election of the Conservatives led by Doug Ford, a fierce free marketeer, means that weed shops will be allowed to grow where they will – though regulation means that none are likely to open before next April. Those desperate for an early spliff will have order on-line and wait for the post. Ontarians may grow their own at home – though a maximum of four plants. You might think whoever deregulated this had been sampling the product…
(Thanks to John Page for this insight)
OTHER VICES…: Irish owned high street and on-line bookmaker Paddy Power Betfair has been fined £2.2m for inadequate money laundering checks and poor monitoring of customers to prevent over-spending by those with gambling addictions. The fine relates to five customers over the past two years. The bookmaker must also return £500,000 to customers (not those failing the money laundering checks presumably) and give £1.7m to a gamblers addiction charity. The Regulator, the Gambling Commission, is in the process of tightening up on the betting industry which it thinks is a prime route for laundering illegally obtained money, and further announcements are expected.
…LEAD TO UNDER PERFORMANCE: British American Tobacco, which nowadays prefers to be known as BAT plc, has warned that sterling weakness is affecting profit performance. Although the tobacco business is in long term decline, especially in the USA and Europe (volumes diminishing around 3% per year), it has remained very profitable. Indeed it has had a bit of a kick recently from consumers’ enthusiastic take up of vaping, as an alternative to tobacco smoking, produced by BAT’s wonderfully named Potentially Reduced Risk Products division. (Cigarettes come from the Tobacco Heating Products division, what else?) Currency is something the business has little control over and it expects will hit profits by about 7% in the current year. BAT shares have dropped nearly a third this year.
