13 December 2018
Lens on the Week
UK
BREXIT: It has been a busy week in politics. First out of the blocks was the European Court of Justice with its ruling on Monday that Britain can unilaterally withdraw its article 50 notice and remain in the EU. No surprise there as the Court followed the opinion of the Advocate General and in any case the ECJ has a political dimension which would have made this attractive to them. On a practical level it opens up a clear option which can be put on the ballot paper if and when there is a further referendum.
Second, Tuesday’s vote on Mrs May’s agreement was deferred because it became clear that the Government could not win it. The sticking points are the backstop which differentiates between Northern Ireland and the rest of Britain in relation to standards and the fact that the UK cannot leave the market unilaterally. That makes it impossible to put trade deals with other countries into effect. The deferral sent Mrs May scuttling abroad to try to finesse the backstop issues with other EU leaders despite having previously said that there was nothing to be gained from further negotiation.
Third, the chairman of the 1922 Committee received the 48 letters from MPs necessary to trigger a leadership challenge so that Conservative MPs had to vote on whether to retain Mrs May as party leader. She won the vote by 200 to 117 but at the price of promising to go after Brexit. That means that the jockeying for the succession will begin. So it’s time to get down to the bookies with Boris at 7/1, followed by Javid, Raab and Gove at 8/1. Then, a couple of points back, lies Foreign Secretary Jeremy Hunt. Perhaps his promotion from Health came just in time.
COUNTER TERRORISM: Houses cleared, armed police, possible outrage at Christmas; Newcastle is the current scene for drama centering on terrorist activity. If the publicity is to be believed, the local force can congratulate themselves on exposing a plot before it matured, but there is a grim message too. We still have operating terrorist cells and with an estimated 700 live investigations some threats are bound to go undetected. As events in Strasbourg would seem to indicate, small groups, difficult to infiltrate, exist outside the main networks. Combating this is likely to mean more intrusive security and a consequential reduction in freedom.
MARS: Apparently, geological materials on Mars resemble those found in parts of Scotland and scientists hope that this will help them to understand the red planet. More likely, however, they have got it the wrong way round and the real boost will be to their understanding of the Scots. The Shaw Sheet does not normally go for scientific speculation, but you have to wonder whether the shortage of liquid on Mars sent them exploring for something to drink. Did they bring the name “Mars Bars” with them by the way and, if so, just where did they learn to fry them?
Elon Musk is anxious to go to Mars. Is that a fair swap for the Scots or should we throw in Boris as well?
International
BIG SPENDERS: Let’s all go on a spending-spree. Why not? It’s Christmas, after all. We’ll only be following the latest Paris fashions; yes, the French president has set the trend. Emmanuel Macron, faced down by the gilets jaunes, has made expensive concessions in a bid to end weeks of violent protests. His promises include: increasing the minimum wage by €100 a month; scrapping a rise in the social levy for those receiving less than €2000 a month; making Christmas bonuses exempt from taxes and payroll charges; and making overtime exempt from payroll charges.
This will cost between €8 billion and €10 billion, according to finance minister Olivier Dussopt, and will throw next year’s national budget into disarray. It will break the French government’s pledge to the EU to keep France’s deficit under 2.4% of national income next year, and at the moment it is actually – though hopefully temporarily – breaking the EU rule which sets the deficit limit at 3% of national income. This means that France is now at risk of being punished by the EU with up to €9 billion in sanctions. The European Commission announced that it will be ‘keeping a close eye’ on France, which now appears to have joined Italy in an awkward and confrontational relationship with Brussels over its increasingly uncomfortable financial position.
See Macron and the Gilets Jaunes for comment on Macron’s chances of continuing with his reforms, and French Lessons For Us for comment on the relevance of the French protests to the UK.
Other big spenders this week included Ramzan Kadyrov, the leader of Chechnya, who secured £600,000 for the annual upkeep of his luxurious new palace. This official residence is bigger than the Russian tsars’ Winter Palace in St Petersburg and is estimated to have cost £117 million. Chechnya is one of the poorest Russian regions; salaries average £280 a month. Last week, Mr Kadyrov gave £28,000 to a five year old boy from Chechnya who made headlines in Russia by completing 4,105 press-ups in less than two and a half hours.
In Mozambique, the government has spent almost £200 million in two years on salaries for 30,000 state employers who do not exist. A recent audit found that 10% of civil servants on the payroll were dead, or made up, or not working. Civil servants’ salaries swallow up over half of the state’s total expenses.
But this week the “big spenders” crown goes to a pair of nuns accused of stealing half a million dollars and spending it all on gambling trips to Las Vegas. The Archdiocese of California revealed that cheques for school fees paid to the Saint Lawrence school in Torrance had disappeared into a secret bank account; pupils’ parents allege that the head teacher, Sister Mary Kreuper, and her deputy, Sister Lana Chang, used it as a personal account to fund their bad habits.
Financial
NOT DRIVING ON: Growth in the UK economy continued to slow in October, in line with a trend seen over the summer, perhaps foretelling an approaching recession. The main component of the slow down this time was the fall in car sales, which was rather expected. Britain is still a major manufacturer of car sales and car components – it remains one of our largest and most important manufacturing sectors, although little of it is UK owned. Demand for cars has been slowing across Europe thus giving the sector a cold, but the particular problem this autumn has been EU changes in regulations on the permitted levels of pollutants from diesel engines – that was cut and no non-compliant engines could be sold after September this year. That gave a bit of a boost to sales in early autumn as dealers rushed to clear their old stocks – but certainly and inevitably reduced demand in October.
SHOPPING ON: We probably do not need any further evidence that high street retail is in deep trouble, but even if we don’t need it, we still get it. And the latest does really prove the point. Poundstretcher, one of the most value focussed of all retail offerings, a successor in spirit at least to Woolworths, posted its results for the year ended March 2018, and they were not cheering. Sales were down by about 2.5%, and profits to a paltry £2.1m. This is the third year in a row that performance has slowed, but the underlying trends are perhaps a little more thought provoking. For one thing, costs, especially salary costs are significantly up, and so is the cost of opening new stores. Poundstretcher sees the current malaise as an opportunity , and is busy expanding – those increased wage costs are because the business is taking on more stores and that needs extra employees. (The board also increased their own salaries – by 14% – which it is hoped reflects greater productivity though the total is a hardly earth-shattering £757,289.) It opened 9 new stores last year and bought 40 from the receiver of Poundworld, a former rival. That gives it almost 400 outlets, but Poundstretcher hopes to double that again by 2022. It also says that changing shopping habits are being recognised – many of its new units are on out of town retail parks with good carparking.
NOT SO SELECT: Turmoil continues in the energy supply sector. In the past few weeks three suppliers direct to consumers have failed financially, the latest being One Select, following Extra Energy and Spark Energy to the graveyard. One Select is in fact the eighth firm to fail this year, which has been very testing for small suppliers. The energy supply sector was a comparatively easy one to enter, but success depends on the twin factors of getting energy purchase strategy correct, and on achieving economies of scale – i.e. getting a lot of customers on the books quick. The recent failures had under 50,000 retail customers each, which makes for high overheads per consumer to be absorbed by the business, but also appear to have been out-foxed by the roller coaster of a market this year, with energy input costs (and demand) reacting to the very cold winter and the very hot dry summer, with the constant rise in the oil price in the early part of the year. On top of all that the regulator, Ofgem, has become more proactive in watching the smaller operators and tightening price control over the sector.
