26 April 2018
Lens on the Week
UK
CUSTOMS UNION DEFEAT: The House of Lord’s has amended the European Union (Withdrawal) Bill, which governs the repeal of the European Communities Act 1992, by inserting a requirement for the Government to negotiate for continued membership of the Customs Union and to report to Parliament on the progress of those negotiations. The Bill itself is the most important piece of legislation governing Brexit as it prevents changes in European Law after we leave from having an effect here. The amendment tacitly accepts that it may not be possible to remain within the Customs Union, but, if ultimately adopted, would put the Government under obligation to pursue the possibility. It is expected that similar proposals will be made when the Bill returns to the House of Commons. Government policy is not to pursue membership of the Customs Union.
STILL CAUSING TROUBLE: The Windrush affair continues to dominate politics with the Government (both Home Secretary, Amber Rudd, and the Prime Minister) apologising for the Home Office’s enthusiasm for deporting elderly people who were clearly entitled to live in the UK but did not have the correct paperwork. Boris Johnson is said to be pressing the Prime Minister for a wide amnesty for Caribbean immigrants.
The fact that this has turned into such a fiasco casts a shadow over proposals by Amber Rudd for a new digital registration system to be used by EU citizens resident here at Brexit. Although she has claimed that using the system would be as simple and easy as setting up a store account, a presentation by the Home Office to senior European politicians ran into trouble when the system appeared to work on android, but not on iPhones. There were also doubts about how the system would handle large numbers of simultaneous registrations. Plenty of room for getting it wrong.
On the Labour side, the row over anti-Semitism runs on, with Jewish leaders attacking Mr Corbyn for failing to take action, despite his pledge to stamp out racist behaviour.
JUNK FOOD: the Government is working with the opposition parties to frame legislation to tackle obesity. Mrs May dropped the strategy devised by David Cameron on this topic when she came to power, but it is understood that she is now prepared to revive many of the measures contemplated.
International
SCIENCE FICTION/SCIENCE FACT: Jules Verne and H G Wells and all the other pioneers of science fiction must be laughing their heads off or howling in disbelief; the twenty-first century world isn’t being shaped by flying cars or time-machines or inter-galactic space travel but by an invention which doesn’t even enable us to do anything new but simply allows us to do all the old stuff faster – the internet. As Toby famously complained in The West Wing: “This isn’t the world I was promised when I was a kid! The Internet? Just another platform for pornography and gossip. Where’s my flying car?!”
And yet the internet (and particularly its most significant – and yet mundane and even banal – offspring, social media) really is shaping and reshaping our world and lives, to an extent which worries and even scares the highest authorities. Last week the US Congress tried to haul Mark Zuckerberg over the coals (so ineffectually that Facebook’s shares rose by 5.7%, making Mr Zuckerberg $3.2billion richer). But one 84-year old senator in his ignorance did manage to elicit one telling admission from him – “Senator, we sell ads”. Think about that, you Facebook users – that’s just about everyone – you’re just giant advertising bill-boards in cyberspace, and you aren’t even being paid for it. I suppose it’s progress of a sort: two generations have grown up paying for and displaying other people’s advertising in the form of t-shirts promoting sports teams, soft drinks, alcoholic drinks, fashion houses, pop groups, etc – at least Facebook is free.
In Russia this week, the authorities blocked the messaging app Telegram (or tried to – they made a bit of a hash of it), after its founder Paul Durov defied a high court ruling and refused to hand over the encryption keys which would enable the security services to access and decode users’ messages. It could well be physically impossible for him to do so; the “end-to-end” encryption provided by this messaging app (which claims to have more than 200 million users and is the ninth most popular in the world) means that not even Telegram can read its own users’ messages. The Russian internet watchdog Roskomnadzor struggled to close it down: by mistake, it somehow managed to close down the Fifa website selling tickets to this June’s Moscow world cup instead, and at one point it even closed down its own website; it inadvertently unblocked banned websites belonging to opposition activists; it blocked a number of Amazon and Google addresses which it thought were being used to circumvent the ban; and many users can still access Telegram in some Russian cities including Moscow.
In China, censorship of social media went into overdrive following Kim Jong-un’s recent visit to President Xi, prompted by on-line discussion comparing the attractiveness of the wives of the two leaders. The censors blocked searches for Ri Sol Ju (Kim’s wife), and deleted all comments about her appearance as soon as they were posted.
India doesn’t understand what all this fuss is about. After all, a minister in the governing BJP party – Biplab Kumar Deb, minister for Tripura state – insisted this week that the internet is at least nine thousand years old and was invented in India by Indians. Along with satellite technology. I wish the Indians would hurry up and invent the time machine, teleportation and inter-galactic space travel. What’s keeping them?
Financial
BUYER BEWARE: Buying a house? Get a survey done, just to make sure that the wiring is OK and the wallpaper does not cover subsidence cracks. Buying a publicly quoted company for £7.9bn? Then it is “caveat emptor” as Melrose are finding out, after winning their hard-fought bid for GKN, the engineering company, a prime supplier to the defence industry. It finds that it has other bills on top – not just fees to its own advisors (£70m, reduced to £22m had Melrose lost) but also those of GKN as is normal in takeovers. Among the heap on the Finance Directors desk are some big ones – £107m to GKN’s advising lawyers and accountants, plus nearly £70m to a company called Dana and its advisors. Who? As part of GKN’s defence it had agreed to sell its automobile division, Driveline, to Dana, an American engineering business. In the event the Melrose takeover succeeded, as it did, the sale would not go ahead but Dana would be entitled to a compensation fee of £40m. GKN also agreed to pay Dana’s advisors costs of £27m. All those advisors must be looking forward to this year’s bonuses already.
Nor will the next file cheer the FD up. The net debt of GKN has shot up, by £235m, to over £1.1bn in the first three months of 2018. None of this was disclosed to the market and there is no requirement that it should have been, but Melrose are not happy, especially as one of the final acts of the GKN board was to pay £1.8m bonuses to senior executives who left on the culmination of the bid.
Melrose may be unhappy but so may an unexpected group – the selling shareholders of GKN mostly took shares in Melrose, so they will feel the fee pain along with the incoming management.
BUYER AWARE: Although it is common to grumble about the death of the British car industry, in fact there are more cars built in Britain now than ever before. (For pedants, we should make clear we mean assembled. Bits of cars are made all over the world and transported around the globe to a surprising extent before they finally can be driven off the production line.) One of Britain’s great car building successes is Nissan, Japanese owned, but with an enormous car making plant near Sunderland, supported by a large number of suppliers who are all clustered within a few minutes delivery time of the factory to ensure the car plant holds minimal stock but can obtain it within 20 minutes.
Nissan has become a great north eastern success over the last twenty years with 9 million cars produced; not just for the UK market but for much of Europe – the government was very quick to reassure the company after the Brexit vote that the terms would not hurt the company. But now Nissan is facing its first downturn. Sales are down about a quarter so far this year and this is almost entirely due to consumer nervousness about buying diesel cars. Although the latest generation comply with stringent regulations for engine emissions – so strict that they are “cleaner” than petrol cars, and in some cases than hybrid electrics – buyers still fear the draconian restrictions on diesel engines being imposed by some local authorities. Although Nissan say that they can adjust their output of power types relatively quickly that is not going to be quick enough to avoid some redundancies in the 7,000 workforce – in the “hundreds” says the company. Consultations are currently underway with unions.
