Issue 156: 2018 05 31: Lens on the Week

31 May 2018

Lens on the Week

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UK

BREXIT: As the row within the Cabinet about Britain’s relationship with the customs union rages on, the manufacturers association EEF has said that max fac, one of the two possible approaches, is not credible.  The chief executive of EEF Stephen Phipson has said in a letter to the Business Secretary Greg Clark that having seen how Maxfac works on the US Canadian border it was clear that it could not be in place by December 2020 in a form which would be capable of handling the level of traffic which passes through the port of Dover.

An invitation by the European Council for British Officials to participate in discussions over the EU budget have upset the Commission and British Brexiteers.  The budget being agreed would run to 2027, long past Britain’s departure date, so the involvement of British officials suggests a long term involvement in financing EU entities.

MEDIA CLAMPDOWN: Holocaust denier and singer Alison Chabloz has been convicted at Westminster Magistrates Court on two counts of causing an offensive, indecent or menacing message to be sent over a public communications network.  The prosecution was originally brought by the Campaign Against Anti-Semitism before being taken over by the Crown Prosecution Service.  Judge John Zani said that he was satisfied that the songs complained of were intended to insult Jewish people and that was clearly so.  Still, some commentators have expressed concern that prosecutions of this type could one day be used to suppress historical argument which challenges the received view promoted by the authorities.  Ms Chabloz has yet to be sentenced.

Meanwhile the police are to tighten up on rap videos which glorify violence and, according to Metropolitan Commissioner Cressida Dick, have the power to promote it.  In particular prosecutions will be brought for incitement even where no particular incident is identified.  It is unclear whether this will require an extension of the law.

Also under attack are the directors of companies which make nuisance telephone calls.  According to estimates by Ofcom there were some 4 million of these last year, although the insurance giant Aviva puts the figure many times higher.  However that be, only 54% of fines charged by the regulator are ever collected because the owners of the relevant companies put them into liquidation and then continue their business through new entities.  It is proposed to counter this by allowing fines of up to £500,000 to be levied against directors personally.  The government is consulting on the form of the legislation.

ABORTION IN NORTHERN IRELAND: Following the vote to liberalise abortion laws in the Southern Irish referendum, Mrs May has come under pressure to reform the regime in Northern Ireland, where abortion is almost wholly outlawed.  Fortunately for her, she has no reason to get involved in this potentially destabilising issue because the matter is one for the Northerner Irish Assembly.  Although that particular body is currently in limbo because of disagreement between the Protestant and Sinn Fein elements and it may be that Westminster will have to take control for a period, this is a matter which will surely be left for consideration when it finally reconvenes.

International

PEACE IN OUR TIME? First, North Korea threatened to cancel the meeting between Kim Jong-un and President Trump scheduled for June 12 in Singapore, in an angry response to what they saw as a threat of regime change from US national security advisor John Bolton and the ‘Libyan model’.  They even threatened to cut off newly-opened lines of communication with South Korea.

Next, President Trump did cancel the meeting, in a letter which blamed Pyongyang’s aggressive rhetoric.  He suggested that China, annoyed by US plans to impose trade tariffs on Chinese imports, might have had something to do with Kim’s change of mind.

Next, further meetings did take place after all between North Korean and South Korean leaders at the peace village on the border.  North Korea destroyed what was left of its underground nuclear testing site.  A team of US diplomats crossed the border into North Korea for talks.  Kim Jong-un’s aide met White House officials in Singapore.  Kim’s spy chief arrived in New York for meetings with US secretary of state Mike Pompeo.

Now the White House is saying that the peace summit between President Trump and Kim Jong-un in Singapore on June 12 is back on the cards…

President Macron of France hosted a conference in Paris to promote peace in Libya.  In what Macron described as a historic step towards peace, leaders of Libya’s rival factions agreed to hold presidential and parliamentary elections this December.  Saif al-Islam Gaddafi (son of the late dictator), Fayez al-Serraj (prime minister of the UN-backed government in the west of the country) and General Khalifa Haftar (leader of the Libyan National Army governing eastern Libya) are all expected to stand for the presidency.  However, the position of president doesn’t exist in the Libyan constitution, so constitutional reforms will have to be made within the next four months.  This, and organising elections within the next seven months, sets a very tight timetable for peace.

WAR IN OUR TIME? The foreign minister of the Philippines said President Duterte is prepared to go to war with China over territory and resources in the South China Seas which both countries claim as their own.  President Duterte has previously said that war was not a realistic option and that the Philippines would trust that China would have the good faith to respect international law.

Israel has reached an agreement with Russia about Iranian forces in Syria.  Russia has apparently agreed to hold back Iranian-backed militias from the border with the Golan Heights, in return for Israel not stopping Assad’s forces from taking rebel-held territories around Dera’a from the Golan Heights to the Jordan border (which is supposed to be a conflict-free “de-escalation zone”).  It’s reported that Russia has also agreed not to interfere with Israeli air attacks on Iranian forces elsewhere in Syria.

Financial

CHARITY BEGINS AT HOME:  It must seem that way for Australian retail conglomerate Wesfarmers.  Two years ago Wesfarmers bought Homebase, the struggling DIY and home products chain, for £340m, intending to invest heavily in giving the business a complete makeover.  It began almost immediately, converting first one store (St Albans), then another 23 to the Bunnings brand under which Wesfarmers trades (highly successfully) in Australia.  Bunnings is less about tools and materials than the outdoor lifestyle.  It seems the new owners had not noticed that life is a bit different in the UK to DownUnder.  It also did not help that most retailers have been having a tricky time over the last 18 months which concealed, at least to begin with, that the new Bunnings format was not trading well.  Indeed D-I-Y has been a notably weak sector, with turnover continuing to drop – down another 15% in the first quarter of this year.

When Wesfarmers noticed what was happening it stopped the store conversion programme, and began a programme to close the 40 weakest performing outlets (out of 240), together with the loss of 2,000 jobs.  It also brought in, in June last year, a new chief executive, Damian McLoughlin from rival and market leader B&Q, to try to sort things out, but to no avail.  Now, after a loss of £97m in the second half of last year, and a write down of £550m, Wesfarmers has decided to give in and has sold the business for £1 to Hilco, a turnaround specialist whose most public venture is its rescue of HMV, the retail music and entertainment chain.  Mr McLoughlin is apparently staying with the business and Wesfarmers will have a 20% share in any future dividends or distributions.  Further cuts to the retail estate and to jobs are thought likely, together with increased investment into Homebase’s website. Wesfarmers will attempt to forget one of the most spectacular failures of retail takeovers of all times, and concentrate on its Australian business.

CHARITY BEGINS WITH HOMES:  We worry about it when it is booming and we worry even more when it is slowing.  The housing market, that is; rising house prices may make us feel better off but make it ever more difficult for the rising generation to buy their own homes.  Unless the oldies help them out, that is.  Not by dying young, but by handing over some of their housing equity – which often means by having to borrow against it.  The net result being that as much as a quarter of the equity for first time buyers’ purchases is coming from close relatives – but connected mortgage borrowing is also going up.  It is estimated that £5.7bn of equity for home purchases will come from family sources in 2018, which will be an element in about £82bn of total housing expenditure.  This is actually likely to be down slightly in cash terms on 2017 – not least because of the fall in some house prices in some markets, which means that equity required is down, although the number of transactions is expected to rise a little.

How much of that parental equity will come from cash in the bank (or pension withdrawals) and how much from borrowing is not known, but, whichever way it is, some of it will no doubt be a bit of a hostage to fortune for those generous relatives whose retirement lives turn out to be longer than expected.  Whether their grateful children will help out in old age; or whether they themselves will be having to help the grandchildren get onto the housing escalator is a question for future economists to ponder.

 

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