Road Privatisation - The Road To Hell

David Cameron has, quite rightly, observed that Britain's roads are in a mess.

Hi solution?

Privatisation of motorways and A roads, whereby companies would lease roads and receive a portion of the annual vehicle licence fee to maintain and upgrade the network. Firms would be allowed to charge tolls and, theoretically, use the revenues received to build more roads.

An "interesting" idea

However, given the shambles of the privatised rail network, airports, and water companies, I am somewhat "baffled" at Cameron's belief that this will actually work.

Read More

Bust

Lord Hutton's proposals that public sector workers should be stripped of their final salary pensions and have schemes linked to average earnings, while paying more and working longer have unsurprisingly touched a raw nerve with the unions.

The GMB have warned of co-ordinated strike action.

Bringing the country to a halt will achieve nothing. Like it or not the country is broke (we have a debt of £4.8 Trillion), we cannot continue to pay ourselves salaries with money that we do not have.

These reforms have been needed for many years, it is only to be hoped that they are enacted and that they are not too late.

Read More

The Country's Debt Burden

As the country faces cuts in government expenditure that are, "apparently", swingeing and ruthless it is worth putting a number of issues into context:

1 The overall debt burden of the country is a staggering £4.8 Trillion.

2 The cuts are cuts in planned inflationary increases in government expenditure, not cuts in actual amounts being spent.

3 The deficit in the Local Government Pension Scheme in England has more than doubled in the past three years to £100BN (7% of the UK's annual economic output).

Despite whatever the politicians might claim, the "cuts" when taken into context are but a pin prick in the backside of the shocking level of debt burden that is crippling the country.

As regards the pension black hole, the solution that the politicians will force on us is going to be increased taxes and increased contributions from members.

Neither of the above solutions will be popular, and will be delayed thus exacerbating the problem. The correct solution should be to change the pensions provided to the public sector to that of defined contribution (as per many in the private sector).

Read More

The SOBER Decade

Welcome to the "SOBER Decade", as George Osborne announces a £83BN spendings cut package that will (according to the much publicised photo of the Treasury briefing document) cost 490,000 public sector jobs by 2014/15.

Savings
Orderly
Budgets
Equitable
Rebalancing

Some leaders of the private sector claim that it can absorb the unemployed fleeing from the public sector. A tad optimistic to my view, given that many in the public sector have zero experience of working in the private sector and that there is considerable "prejudice" within the private sector to those from the public sector.

As ever there will be a chasm of reality between economic "plans" and political reality.

The next decade may well be "sober", but will the patient survive the withdrawal symptoms?

Read More

Royal Mail To Be Sold/Privatised

Unsurprisingly the government, in the form of Vince Cable no less, has announced that the Royal Mail will be sold/privatised.

Also unsurprisingly, the unions representing post office workers have reacted with "irritation" to the announcement.

I recommend that you post your Christmas cards now, if you want them to arrive in time for the festive season!

Read More

Beware The Hype of The Double Dipper

There are fears, being stoked by the media, that Britain may be heading for a double dip recession.

The service sector, that accounts for the bulk of Britain's economic output, showed that its growth fell to its slowest since the end of the recession last year.

The blame is being laid at the feet of the government, for cancelling public sector contracts.

All very well, but the size of the public sector debt and the fact that certain service sector companies were milking the government for every penny that they could get over many years is reason enough for the government to call a halt to the free for all.

The reality is that the UK has relied for far too long on the public sector to prop up the economy.

Economies cannot survive forever by merely passing one bundle of money from one part of the economy to the other, money must be earned from productive industries and services that sell outside the economy.

Read More

Level Playing Field

The government has announced that it will switch the index linking of private sector final salary pension schemes from the Retail Price Index (RPI) to the consumer price index (CPI).

This is in line with the similar measure announced in last month's emergency Budget relating to public sector pensions.

CPI excludes house prices and mortgage payments, is consistently lower than RPI. It is estimated that private pension incomes will fall between 10%-25% in retirement.

The CBI is pressing for legislation to allow those schemes who are specifically required to use RPI to be able to use CPI.

Read More

Brown's Bargain Basement Clearance Sale

Gordon Brown, desperate for cash, has announced a £16BN programme of asset sales in order to bring down the massive state debt built up during the recession.

£3BN of assets are planned to be sold off over the next two years including; the Tote, the Dartford crossing, the Channel Tunnel rail link, and the Student Loan book.

Much like when he sold Britain's reserves of gold at the bottom of the market, his timing is lousy.

Read More

The Pension Blackhole

At the start of Labour's term in office in 1997, Gordon Brown made a tax raid on pensions to the tune of around £5BN. He was warned at the time that the raid would precipitate problems within the pensions industry.

Brown is not a man to listen to the opinions of others, when they contradict his; as such he duly ignored the warning.

The country is now reaping the whirlwind of his folly as, coupled with the economic downturn and out of date actuarial tables, the pensions industry faces a crises of underfunding.

Research from PriceWaterhouseCoopers shows that 96% of all employers now think that defined benefit schemes are unsustainable, and 74% are considering halting all accruals for existing members.

This means that even those of us in the private sector who are already members of a defined pension scheme will find that "certainty" taken away from us.

The public sector (our beloved MPs included) still pampers itself in the delusion of fully funded defined benefit schemes, the funding of course made up by an ever increasing burden on the hapless taxpayer.

Brown made half hearted U turn yesterday by putting the brakes on plans for a 7% rise in taxpayer contributions to MPs' pensions, after pressure from the Conservatives and Liberal Democrats.

However, the reality is that the public sector schemes are not sustainable.

Those who delude themselves that they can continue to demand ever larger contributions from the taxpayer, to fund these schemes, will find that the taxpayers will not tolerate being milked in this manner any more.

Failure to address the gross disparity between private and public sector pensions will cause a state of semi "civil war" between the private and public sector, as taxpayer resentment of the public sector reaches boiling point and the public sector fights to protect what it sees as its rights.

Brown is most assuredly not the man to address this issue.

Read More

Public Sector Crippling Private Sector

The Times reports that as the private sector contracts and sheds jobs, as the recession worsens, the public sector is in fact growing. The Times notes that:

- Public sector pay rose by 3.7% in the year to January 2009. Private sector pay fell by 1.1% cent in that period.

- 30,000 jobs were created in the public sector last year, with 105,000 lost in the private sector.

There may be a tenuous, theoretical argument, that keeping people in the public sector at least lessens the unemployment figures. However, the reality is that the government is broke and that it relies on the private sector to fund its public sector largess (eg do not forget that, unlike the private sector, public sector pensions are still final benefit schemes).

Paying ourselves to wear high visibility jackets, carry clipboards and form fill may in the short term keep people off the unemployment register. However, in the long term unless we cut our cloth according to our tax take, and remember that it is the private sector that powers the economy, this shortsighted policy will spell economic and social disaster for Britain.

Read More

Bankers' Blacklist

Be warned, according to The Times, bankers are drawing up secret black lists to ban businesses from overnight borrowing.

Seemingly hundreds of clients have been included on the lists, which include international trading and commodities companies that supply the small-to-medium-sized business sector.

Were the banks still private companies, this would be a matter between them and their borrowers. However, now that the government has effective control over a number of them, this is now a matter that directly affects government policy and credibility wrt its attempts to limit the impact of the recession.

The banks will find that, unless they modify their behaviour, Brown and Darling will become very hands on "directors".

Read More

Northern Wreck

Shares in Northern Rock have plunged to an all time low today to 54p (they traded less than a year ago at £12), on the not unexpected news that the government is close to nationalising the Wreck.

The previous board members of Northern Wreck must be feeling really proud of themselves for destroying this bank!

Quite why the fall in price should come as a surprise to shareholders baffles me. Had they bothered to read this column they would have seen that I have been warning for sometime now that the shares are nothing more than the plaything of the speculators, and will end up in the rubbish bin in the same way as Marconi.

Virgin and Olivant, two companies trying to arrange a deal, are struggling to arrange funding.

Yesterday's extraordinary general meeting, was a damp squib and a waste of time. The board only lost one minor resolution brought by rebel shareholders.

Brown meanwhile kicked any remaining support from under the share price by saying:

"There are a number of companies in the financial private sector that have expressed an interest but public ownership - later to move it back into the private sector - is one of the options. The reason we've got to look at everything ... is that the stability of the British economy is the issue."

Meaning that he will do whatever is necessary to ensure this mess is sorted out ASAP; ie he will nationalise it within weeks.

It is unclear how much would be paid to shareholders in the event of nationalisation. However, the lower the share price the less they will be paid; it will be pennies not pounds.

This is a slow motion car crash that the shareholders could see, yet refused to acknowledge.

Read More

The Nationalisation of Northern Rock

It should come as no surprise to learn that Alistair Darling (Chancellor) has laid out plans to nationalise Northern Rock, later this month, and sell off the assets.

His only/last hope of reprieve will be if the private sector bids for the Rock actually come to fruition. However, these look increasingly less likely as:

1 There is a £100M black hole in the pension fund

2 The shareholders are doing their best today to play ostrich, and stop any private sector takeover, in the vain and misguided hope that the bank is worth more than a few pennies. It is not, the previous board oversaw the destruction of this bank in much the same way as Simpson et al destroyed Marconi.

As and when the bank is nationalised, the assets will be sold off piecemeal and the hapless taxpayers will be out of pocket by at least £50M. Britain's reputation as a world class financial centre will take a tremendous knock.

So who is to blame for this mess, who should be held accountable?

In my view the following should be held accountable:

1 The previous board, whose greed and egos led them to ride roughshod over common sense and good banking practice by skewing the bank's risk portfolio heavily into the danger zone.

2 The FSA for being asleep at the wheel, and not stepping in sooner to stop the destruction of the bank.

3 The Prime Minister, whose dithering over the "non general election" caused him to hold Darling back from intervening in this fiasco earlier.

Read More

UK Most Exposed To Crunch

The World Economic Forum (WEF) has warned that Britain's economic reliance on the financial services industry makes it more exposed than most to the effects of the ongoing credit crunch.

The WEF's annual Global Risks report warns that Britain may bear the brunt of the growing repercussions.

Quote:

"In Europe, the prominence of the UK's financial sector makes it vulnerable."

The WEF also notes that the crisis has raised "fundamental questions over the vulnerabilities of the current model of financial markets".

The WEF see that paradox in the speed of reactions and cohesiveness of the global financial system:

"while the financial system has been made more efficient and stable in normal times, it is also now more prone to excessive instability in really bad times."

WEF is calling or greater collaboration between policymakers and the private sector to address these problems.

As noted before on this site, the credit crunch is a creation of the bankers out of a situation of their own creation. They have the liquid funds available to lend to each other, but their fear has paralysed them like a rabbit facing the headlights.

Until the banks show some leadership and courage, the crisis will continue.

Read More

HMRC's Staggering Incompetence

The HMRC and Treasury finds itself further in the mire today, as more details emerge about the colossal failures of security in respect of the loss of child benefit data.

Yesterday I wrote that 15 million people were affected, in fact the figure is a mind numbing 25 million.

The discs seemingly were only password protected, they should in fact have been encrypted. This means that the data will be very easy to access, and it is reasonable to assume that the underworld is now looking for these discs.

Security experts have lambasted HMRC for its incompetence.

Tom de Jongh, product manager at SafeBoot, said:

"Basic policies were ignored. It appears that the fundamental policies upon which the National Audit Office and HMRC operate are flawed and it is no wonder that this breach has occurred.

The Chancellor freely admits that NAO and HMRC broke clear procedures, but that will not reassure the millions of families that are praying their financial details don’t get into the wrong hands."

Brian Spector, general manager for content protection group at Workshare, said:

"It is staggering that an organisation responsible for the data of over 25 million child benefit claimants is still copying data onto CDs and not ensuring its full protection through encryption techniques.

It has never been acceptable for businesses or government departments to lose data, but in today’s information society, the flagrant disregard for the protection and security of this type of data is not acceptable.

The money invested in IT by the UK government must now be prioritised on security to ensure that the data of those the government serve – the public - is secure and protected."

Jamie Cowper, director of European marketing at PGP Corporation, said:

"These discs should never have been transported in the first place – information of this type should only be transmitted using the strongest security protocols available such as encrypted batch transfer – but more to the point, these details should not have been stored in this medium.

Discs are easy to lose, but difficult to protect. This type of information should only be stored on formats where the data can be encrypted transparently, so that it remains protected wherever it resides, and whether at rest or in motion."

An ex member of the HMRC spoke anonymously to the BBC:

"I wasn't surprised in the least when I heard the news. The problems with Child Benefit are only the tip of the iceberg.

Morale is non-existent. Mistakes happen continuously. Rooms full of unopened post are not uncommon.

Arbitrary individual hourly targets meant that people cut corners. It doesn't matter if you make mistakes because you won't be held accountable.

There is no trust between management and staff.

You are like a number. It is utterly demoralising.

I've spoken to some of my former colleagues about the Child Benefit blunder, and they are utterly apathetic. It's just one thing on top of another.

People hate it, but after 20 years or whatever they feel they can't get a job in the private sector.

Something like this was going to happen sooner or later."

The above is not only a damning indictment of HMRC but also an indictment that applies equally well to all other bodies in the public sector, and exposes the consequences of ten years of Brown's rule at the Treasury.

The damage he will do to the country as Prime Minister, were he to remain in office for that long, is mind boggling.

Read More

The Metronet Debacle

Workers from Metronet facing redundancies, following its demise last week, are urging the prime minister to bring its contracts back into the public sector.

When Gordon Brown was Chancellor he bulldozed the Public Private Partnership (PPP) initiative through, despite fierce opposition, this was the scheme under which Metronet bid for its contracts.

RMT general secretary Bob Crow has asked for infrastructure work to be the control of London Underground.

In a letter to Brown, Crow said:

"The collapse of Metronet means there has to be a fundamental rethink on how the London Underground infrastructure is maintained and renewed.

We support the view of the Mayor of London that infrastructure work should be taken back in-house under the control of London Underground."

Brown will have to make quite a political contortion, something that he is not prone to do, if he is to meet the desires of the Metronet workers; ie it won't happen.

Read More

The Price of The Metronet Failure

Gordon Brown has not escaped quite so cleanly, as he may have hoped, from the Metronet debacle.

Transport for London (TfL) has promised to stump up £750M to prevent the "meltdown" of London's primitive and shameful tube system, following on from yesterday's announcement by Metronet that they have placed themselves into administration.

Alan Bloom, an insolvency expert from Ernst & Young, has promised the hapless commuters of London who endure on a daily basis the third world tube system that he had an "overriding obligation" to ensure that the tube network does not grind to a halt.

Well, he would say that wouldn't he?

Ken Livingstone, Mayor of London, to his credit had resolutely opposed the PPP Metronet scheme. However, he was bulldozed out of the way by the "big clunking fist" aka Gordon Brown.

Chickens now are coming very firmly home to roost; and the Mayor has warned that the refitting of over 100 tube stations might have to be pushed back years, in favour of a multibillion-pound overhaul of the underground's signalling systems that Metronet was due to carry out.

Mayor Livingstone said that London now faced a "difficult period", while TfL tried to handle Metronet and "the clunking fist's" legacy of a £2BN cost overrun, a lending freeze from its banks and question marks over who inherits its two PPP contracts.

One has to ask some blindingly obvious questions:

1 How were things allowed to get to this stage in the first place?

2 Was no one overseeing this fiasco?

3 Who will be held to account?

4 What has the clunking fist got to say for himself now?

Needless to say, it will be the long suffering taxpayer who gets saddled with another one of this government's financial foul ups.

Tim O'Toole, a senior TfL executive and head of London Underground, said that he expected the taxpayer to plug any financial gaps left by the Metronet intervention.

"This will feed in with the larger discussion with the government about the funding of TfL and transport in London."

Quite!

The cash bung of £750M will be enough to cover Metronet's funding gap until the end of this year; after that...who knows?

By the way, the reason the clunking fist imposed PPP contract was to transfer the financial risk of managing public sector assets to the private sector.

Yes, you did read that correctly!

It would seem that the risk has been very speedily transferred back, which would indicate that PPP contracts are not worth the paper that they are printed on.

Well done Metronet and the clunking fist.

Read More

What Use Are Consultants?

Those of you who ever wondered what use consultants are, and whether they really represent value for money, should take heart from the findings of the all party Public Accounts committee.

The committee has lambasted the government's waste of £2BN per annum on external consultants, deriding it as "sheer profligacy".

The committee said that given such amounts of expenditure it was "impossible to believe that the public are receiving anything like full value for money".

In 2005-06 the public sector in England spent approximately £2.8BN on consultants, a staggering increase of 33% pct over the previous three years, with central government accounting for £1.8BN.

The bulk of the increase came from higher spending by the National Health Service.

Quote:

"Central government is repeatedly using consultants for core skills, including project and programme management and IT, and is increasingly turning to a select list of suppliers."

Committee chairman Edward Leigh said:

"Departments are often on the phone to consultants without first finding out whether their own in-house staff have the skills to do the job.

Departments routinely do not agree with the consultants any measurable benefits to be expected from the contracts. And consultants are often paid simply on the basis of the amount of time worked and not on what the work has achieved.

What would we say of anyone in private life who dealt with contractors like this? The consultancy firms are truly on to a good thing.

It is impossible to believe that the public are receiving anything like full value for money from this expenditure. In fact, a good proportion of it looks like sheer profligacy."

Quite!

The consultants know that with this government, they have a prone cash cow begging to be milked to death; the government know that they need not worry about funding the bill, as all they have to do is raise taxes.

Everyone's a winner, except for the taxpayer!

Read More

FSA Chief Quits

John Tiner, the CEO of the Financial Services Authority (FSA), announced his resignation yesterday.

He will leave in July 2007, having held the post for four years.

Tiner said that he was leaving because he wanted to take up a fresh challenge in the private sector, before thinking about retirement.

He joined the FSA in April 2001 as managing director of the consumer, investment and insurance directorate and was appointed chief executive in 2003.

FSA chairman Callum McCarthy said:

"He has been a leader in developing international regulation through his work in Europe. Within the FSA, he has been invaluable in developing and leading a management structure with discipline and enthusiasm."

Rather bizarrely Tiner will remain an employee of the FSA until January 2008, during which time he will be excluded from any work within the financial services sector or for any UK listed company.

Read More