23 May 2019
Lens on the Week
UK
NUTS: “Here we come gathering nuts in May,” sing the children, and, if reports of the reaction of MPs to Mrs May’s new proposals are to be credited, that is a much more profitable activity than revamping the Withdrawal Agreement. Yet revamping it is what the Government appears to be doing in the pious hope that one way or another it will clear the parliamentary hurdle. They cannot of course change the agreement itself. The EU has made it perfectly clear that that is final so any changes have to be to the political declaration or to the U.K.’s domestic position. The cornucopia of concessions includes:
- Guarantees on workers’ rights and environment protections to keep them in line with those in the EU;
- Trade to be as frictionless as is compatible with ending free movement and leaving the Customs Union;
- Manufacturing and trading standards to be maintained insofar as relevant to border checks;
- A legal obligation on the government to “seek to” conclude alternative arrangements for the Northern Ireland border by the end of 2020. This is a Canute clause, as is acknowledged by the words in parenthesis. Yes, the Government is obliged to try… but…;
- If the Withdrawal Agreement makes it through, the Government would concede a vote on the temporary customs union and also on a second referendum.
And those are the more interesting bits! This type of patch and mend simply isn’t going to cut it. Having given up on the Brexiteers on the right of her party, Mrs May is hoping to pull Labour MPs to her aid. The trouble is that they see their best course as sitting on the fence and hoping that power will fall into their laps, as indeed it may.
Meanwhile in the Tory camp, party discipline has broken down completely. Mogg says that the agreement is worse than before. Johnson says that it betrays the Tories’ election manifesto. Heseltine says he will vote Lib Dem in the EU elections. Everything is chaos and Mrs May’s retention of power can only be justified by the words of Mme de Pompadour: “après nous le deluge”. Well, very probably, but rain cannot be avoided forever.
POVERTY REPORT: A brief report by Philip Alston, Rapporteur to the United Nations, says that the Department of Wealth and Pensions is in a state of denial over levels of poverty in the UK . Currently 14 million people or 20% of the population live in poverty, 4 million of those make do on an income at 50% of the poverty level. 1.5 million people were destitute (an income of less than £70 per week) at the same time in 2017. The Department of Wealth and Pensions points out that, according to the UN’s own data, the UK is the 15th happiest place to live and claims that the report gives a completely inaccurate picture of the Department’s approach. That it differs in its conclusions is perhaps not surprising bearing in mind that Mr Alston suggests that it has an unsympathetic ethos which pushes people into poverty.
That leaves us with two quite different descriptions of the same society and of the effect of attempts by successive governments to deal with poverty by bringing people back into work rather than leaving them dependent on the state. Has the latter policy failed? If so, are the ideas wrong or have they been badly implemented? Are the problems caused by austerity?
Mr Alston’s findings chime too well with evidence of increased use of food banks and of children arriving at school not properly fed, to be ignored. The politicians need to take some time off Brexit to work on this. For our part the Shaw Sheet will discuss the report’s conclusions more fully when we have had time to analyse them.
International
IRAN/USA: Following increased tension in recent weeks, with US sanctions against Iran and an increased US military presence in the Persian Gulf, President Trump reassured the Pentagon that the White House was not intent on a war with Iran. He also took measures to counter the influence of his hawkish national security advisor John Bolton, who many believe is encouraging armed conflict with Iran. Secretary of state Mike Pompeo and acting defence secretary Patrick Shanahan briefed concerned Democrats behind closed doors, reassuring them that the administration didn’t want war but that there was a real, specific and increased present threat from Iran (an idea denied by a British general this week) which it is necessary to deter. President Trump is believed to be hoping to use Switzerland as a channel of communication with Tehran (he hosted Swiss president Maurer this week) and said that Tehran should call him to talk. However, further comments on Twitter developed into a war of words with Iran, escalating into the usual threats and counter threats.
President Rouhani announced to senior clerics that he is seeking new powers to tackle threats from the USA. He claimed that the White House has tried to open new negotiations eight times in the last few months but Iran not is prepared to talk under pressure and without respect. Iranian news agencies said that Iran has quadrupled its production of uranium since USA withdrawal from the anti-nuclear deal.
CHINA/USA: Following increased tension in recent weeks – with the collapse of talks about a trade deal and the tit-for-tat imposition of tariffs threatening a trade war, and growing concern about Chinese trade tactics and Huawei’s relationship with the state – US intelligence officials briefed US business leaders about the dangers of doing business with China, disclosing classified information about corporate espionage and intellectual property theft. President Trump put Huawei on a blacklist, and Google suspended hardware and software transferring operations with Huawei, which will prevent the Chinese company’s access to operating system upgrades and to Google apps. Terry Branstad, the US ambassador to China, is making a visit to Tibet, the politically sensitive autonomous region, to coincide with the sixtieth anniversary of the Dalai Lama’s failed uprising against Chinese rule. Beijing usually denies access to Tibet to foreign officials, journalists and tourists, but since last December the US Reciprocal Access to Tibet Act has increased pressure on China to relax entry to the region.
SPAIN: Five Catalan separatist politicians who were jailed following last year’s failed declaration of independence, but who were subsequently elected to the Spanish parliament, were allowed out of jail under police escort to be signed in as MPs in the parliament buildings. They were then returned to prison and the smartphones and tablets, issued to every MP, were confiscated. They will have to return to parliament later this week to swear on the Spanish constitution – a refusal to swear such an oath will lose them their seats.
Financial
STRANGE COMBINATIONS: It’s only a rumour at the moment, but one based on at least some deep thinking and high-level discussions: a possible combination, not perhaps a full scale merger, between Jaguar LandRover Group (“JLR”), owned by Tata of India, and Peugeot/Vauxhall, owned by PSA of France. Trying to not muse too deeply on the possible appearance and features of a jointly designed car, the move seems to have been discussed at a senior level within both companies. JLR has been seen as a great success for Tata, who bought the then struggling luxury car maker from Ford in 2008 and turned it round with considerable success, improving reliability, diversifying both the Jaguar and Land Rover ranges, and making the combined business hugely profitable. However, like many of the ancien regime of car makers, JLR has failed to be innovative or to invest fast enough in non-carbon propulsion (catching up fast but still a long way to go to catch up Tesla’s technology or Japan’s weight of money) and has becoming heavily loss-making – £3.6bn recently announced for last year. Blending the JLR brand and American distribution network with PSA’s ruthless management skills might bring much to both parties.
HOW MUCH? It has long being an axiom of remuneration strategies for senior executives that their bonuses should be tied to returns earned for the shareholders. FTSE100 engineering success story Melrose, which took over the better-known GKN last year, adopted that approach with enthusiasm for its four most senior executive directors. And the execs are almost certainly equally enthusiastic; last year each of the four got a bonus of £42m. Before you fall out of your chair too hard, that is for the previous five years, so around £8m a year. Not bad, all the same. That pool was 7.5% of the added value of the company – so the shareholders have been doing pretty well also. The next three year plan (running for a year so far) is not looking so healthy at the moment – at present the share price is 184p, which would entitle the four to exactly nothing. They need to get the market value of the company up to over 228p before they are back in the money, so the next two years are all to play for. Needless to say, not all the shareholders are happy with the scheme – 12% voted against it at this year’s AGM, and shareholder advisory groups have campaigned against it. But if it isn’t broken, why mend it?
BANKING NEWS: Co-op Bank is surprisingly still with us, after effectively collapsing six years ago after a boardroom scandal, lots of bad lending, and liquidity problems. It is slowly recovering, with many loyal customers especially in its north western roots, but it is still loss making. The heralded breakeven this year still seems far off – it lost nearly £29m in the first quarter of 2019, similar to 2018, though the board are still hoping for better news for shareholders by the year end.
BRITISH STEEL: As the liquidators go in at British Steel, a company which previously employed 4000 workers, two questions, will need to be asked. The first is how it got here. Owners Greybull, private equity turn round specialists, bought the company for £1 in 2016 and have since injected considerable debt. For two years they made a profit but not now, and they have been unable to strike a deal with the government as to future finance. Presumably the very factors that made the business worth only £1 in 2016 are those which prevent it being viable.
The first question leads onto the second. If Greybull could not make a success of the business, can anyone else? Currently it sits with the liquidator and no doubt the Government would love to find someone who would buy it without the state having to commit to too much by way of subventions. The alternative, of course, is to nationalise it but then the Government risks getting into the position of having to finance an unprofitable business which, for political reasons, it cannot close. That would not be a great place to be and Mr Corbyn, who presumably hopes to take power before long, needs to think carefully about whether that is really his favourite outcome before he pushes it too hard.
