Category Archives: Politics and regulation

The Labour and G4S debacle is a stark reminder of both organisations’ troubles

Its leadership has been heavily criticised and its performance has been staggeringly dreadful in recent years. Am I talking about the Labour Party or G4S? It doesn’t matter. The description fits both the opposition party and the security firm.

This week’s latest saga, revolving around the Labour Party’s decision to terminate its contract with G4S over the security firm’s ties with Israel – followed by a last-minute U-turn – is a stark reminder of the troubles within both organisations.

This situation is the latest embarrassing gaffe for Labour, who may need to cancel its conference now – unsurprisingly no other security firms are lining up to take on the contract at such short notice.

Boycotting firms over their links with Israel is a tiresome story. How often do you hear organisations say that they are boycotting firms over their links to countries with a host of civil rights violations, such as China or Brunei? Or that they won’t work with the UK government because of its deals with Saudi Arabia? It’s hypocritical and borderline racist. Which, in my opinion, is a fairly accurate way to sum up the Labour party at the moment.

On to G4S. I’d practically forgotten that G4S is still in the country’s beauty parade of top outsourcing firms, in line to get the most lucrative jobs – both private and public sector. I’d say it’s pretty shocking that after a string of scandals (prisoner tagging, Olympics shambles etc) it was even in the running to keep such a high-profile contract as the Labour one. I think the problem lies with public sector outsourcing; a prolific array of barriers to entry for smaller firms (such as only getting paid every quarter, which is unviable for firms relying on monthly payment) mean that the tender process is uncompetitive and the contracts will go to the same tired old names (Serco anyone?).

I think this has a knock-on effect to private sector work, as the biggest firms, getting ever bigger from the plum public sector contracts, are in a stronger position, while the smaller firms aren’t getting the work they need to thrive and grow. I think government reform would help return the sector to some level of respectability.

Breakfast with Hot Commodity: the Brexit debate

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Hot Commodity’s inaugural event, held yesterday morning at The Clubhouse in Mayfair, went off with a bang! JD Wetherspoon boss Tim Martin and Philip Davies MP went head-to-head with economist Vicky Pryce and entrepreneur Alex Mitchell to debate the highly topical issue of Brexit ahead of the EU referendum.

The well-informed panellists did not hold back – from Philip calling Vicky’s pro-EU arguments “drivel” to Tim calling the Treasury “George Osborne’s PR department” and the chancellor “disreputable”.

The be-leavers

Publican Tim gave a spirited argument as to why we should leave the EU, centred around democracy and the need to control our own laws.

“If you look around the world, the successful economies are democratic and have a very high level of democracy that you don’t have in Europe,” he said.

“The European Court judgements, we have no control over and are supreme. The European Commission isn’t elected. It frames the laws and we cannot sack them. It is not democratic. And the 751 Members of European Parliament are too remote to be democratic,” he added.

Eurosceptic Tory MP Philip Davies, who founded the Better Off Out campaign in 2006, focused his argument on how much we could save by leaving the EU.

“We should be ashamed of ourselves that we are handing over £10.2bn this year to be part of a backward looking, inward-facing protection racket set up to prop up inefficient European businesses and French farmers,” he said. “This is not what the UK has ever been about and should not be what the UK should ever be about.”

Stronger in

But remain-ers Vicky and Alex fought back with equal force. Vicky, who is on the board at the Centre for Economics and Business Research, argued that the benefits outweigh the disadvantages of being in the EU.

“There is no doubt at all that having been part of the EU has helped us quite substantially in the past few decades,” she said, explaining that it helps “productivity, innovation and investment”.

“What it also does for the consumer and of course any entrepreneur who has to sell the goods is that it is a very keen market in terms of prices,” she added. “Look what’s been going on as the markets opened up in the airline sector…and the telecoms sector. There has been a huge consumer benefit coming out of this, with a huge increase in the number of possibilities in terms of what can be offered.”

Alex, an entrepreneur and UK President of the G20 Young Entrepreneurs Alliance, conceded that Brussels is “a difficult beast” that “needs change”, but emphasised the benefits of being part of a larger economic union for smaller and fast-growing industries.

He made the point that UK businesses have benefited hugely from EU programmes such as the Horizon 2020, which is providing nearly €80bn of funding for research and development projects over the seven years to 2020.

Trade deal or no deal?

Tim made the point that there is currently no trade deal between the UK and the US and that “it hasn’t done us too badly for the last couple of hundred years”.

“We buy our wine from South America, Africa, New Zealand and Australia. For many years I asked why aren’t we able to get better deals from the French, but we just can’t,” he said, disputing the idea that there are better trade deals to be had in the EU.

And Philip argued that with Britain’s £62bn trade deficit with the EU, it would be easy to secure a free trade agreement – as we have far more to offer the bloc than the likes of Norway.

Vicky came back with a strong riposte to the leave team, who also had concerns about the high levels of immigration coming from EU countries:

“It’s interesting to think we can have an even better deal, with completely free access to the market…Are you telling me we can have everything we want if we leave, but [without] people coming into this country? The chances of achieving that are peanuts.”

She also hit back at Philip’s criticism of the EU being a declining part of the world economy, saying: “If you look at the growth of the countries that we are dependent on and that we would like to be trading more with – and nothing has stopped us so far doing this – or the BRIC countries with the exception of India, they are all in recession. We can’t rely on those parts of the world.”

Rates and rumours

Tim blasted chancellor George Osborne for warning that a Brexit could lead to higher interest rates, labelling him “disreputable”.

“After the 2008 economic crisis, the pound went down, inflation went up for several years and what happened to mortgage rates? They went down,” he said.

“It was highly disreputable for the chancellor to give rise to headlines that say that mortgage rates will go up in an economic crisis, when the last time, they went down.”

Vicky qualified the central bank action by saying that the Bank of England had “very sensibly decided not to raise interest rates in the middle of a recession”.

Interested in taking part in – or supporting – the next Breakfast with Hot Commodity event? Email info@hotcommodity.co.uk.

Brexit will not stop EU free movement

Leaving the European Union would not halt the free movement of migrants into the UK, a legal expert has said.

A key argument for the ‘leave’ camp ahead of the 23 June referendum on Britain’s membership of the EU has been migration, at a time when the bloc is struggling to deal with the fallout from the Syrian refugee crisis.

Eurosceptics argue that leaving the EU will give us sovereignty over our borders and stem the flow of migrants from newer members of the economic and political union, such as Bulgaria and Romania – and prevent migrants from outside the bloc entering the UK via other member states.

If we did leave the EU, the UK would have to establish new trade agreements with the rest of Europe. But Anthony Woolich, partner at Holman Fenwick Willan, told Hot Commodity that if the UK expects to continue doing business with EU member states, it will come with strings attached.

“If the UK wants to export its goods and services to the EU, free movement of persons could be a key part of a free trade agreement,” he said.

“Especially bearing in mind how close the UK is to mainland Europe, I think it is highly likely that the EU would demand free movement as part of the deal.”

However, it should be noted that the EU currently has 53 trade agreements with countries around the world – all with varying Visa arrangements – so free movement is not a certainty.

Regarding the trade deal itself, Woolich argues that this could be tricky to thrash out.

“I don’t think the UK will be very popular if we leave the EU, as it’s a time of crisis,” he said. “So I think the EU will drive a hard bargain.

“Furthermore, the EU has negotiated our trade agreements with countries outside the bloc – does our civil service have the expertise to negotiate these deals?” he added.

“These discussions are slow moving and we will have to do this on multiple levels.”

The migrant crisis has dominated headlines in recent months and added weight to the ‘leave’ argument, due to growing concern over border control. Prime Minister David Cameron recently came back from Brussels with a proposal for EU membership reform that was seen as far too weak by Eurosceptics.

The large inflow of migrants has put a strain on some eastern European countries, who do not have the capabilities to deal with them. Macedonia provoked outrage when it resorted to using tear gas to hold back migrants, while other countries have built high fences and tightened their identity controls to protect their borders.

This week the EU proposed a deal whereby Turkey will take back Syrian migrants who have arrived in Greece and in return, a Syrian already in Turkey would be resettled in the EU. Turkey would receive financial support and progress on its EU membership application.

BT and Openreach? It’s complicated, says TalkTalk

Jessica Lennard, director of corporate affairs and regulation at TalkTalk, tells Hot Commodity why Ofcom’s report brings more questions than answers for BT…

It was another big week for the telecoms industry, as Ofcom emerged from its bunker after a year-long consultation on the current state of the sector. Its main conclusions (that the UK is lagging badly behind on the technology of the future, fibre to the home; and that BT is systematically abusing its ownership of the national network, Openreach) came as no surprise to many. The fact that the regulator’s 108 page report holds few concrete policy proposals to remedy its fairly punchy findings was nonetheless greeted with widespread frustration by commentators, customers and BT’s rivals.

BT has remained ostensibly bullish as whispers about the need for a break-up have grown into a roar over recent months. But an 11th hour ‘coincidental’ offer of an extra £1bn investment (presumably found down the back of the sofa) laid bare quite how nervy the ex-monopoly has become. BT celebrated a ‘victory’ yesterday, but smart shareholders will now want to know what exactly the regulator intends to do – did they really “bottle it”, in the words of Lib Dem Leader Tim Farron? Or could this be the start of a smart negotiation by Ofcom chief executive Sharon White, who was quite clear that full separation remains on the table until further notice.

One assumes this is by no means a settled debate for BT itself. Part of the business is clearly pulling away into retail, with aggressive expansion into mobile and TV – expensive pursuits that would benefit nicely from a big wad of cash from spinning off Openreach. Instead, BT’s beleaguered chief executive finds himself embroiled in a seemingly never-ending national debate over a crumbling infrastructure network. Openreach may still symbolise BT’s engineering heritage, but if Sharon White has her way and imposes a kitchen sink’s worth of new regulation, will keeping it be worth the trouble?

This commentary was provided exclusively by Jessica Lennard at TalkTalk for Hot Commodity.

Iran’s oil minister has raised the oil price without actually doing anything

Iran’s oil minister Bijan Zanganeh is a consummate politician.

Today he has single-handedly managed to boost the oil price and send Twitter crazy by implying that he will cooperate with other producers in freezing production, without actually saying…anything.

As it stands, the Saudi-led output freeze pledge is pretty lacklustre anyway. Confirming that you won’t lower production from near all-time highs will do very little to address the huge supply glut and slowed demand.

But without Iran’s cooperation, the deal goes from pretty lacklustre to downright useless. Iran, recently freed from international sanctions, was one of the world’s largest oil producers before the embargoes and if it decides to ramp up production then it will render a Saudi/Russian/Qatari/Venezuelan output freeze largely ineffective.

Zanganeh hasn’t explicitly said whether he would freeze production or not, instead sticking to newspeak mumblings of “support” and a “good meeting”, but this in itself speaks volumes.

The fact that the oil price has now lifted above $34 a barrel on this “news” shows exactly why the market should be taken with a pinch of salt.

To read the full story, go to: http://www.hotcommodity.co.uk/2016/02/17/brent-crude-iran-oil-output-freeze/

Price of brent crude rises after Iran’s oil minister says he supports production freeze

The price of oil has risen after Iran’s oil minister Bijan Zanganeh has said that he supports other producers’ pledges to freeze production – although he didn’t confirm if Iran would follow suit.

Zanganeh said that today’s meeting with his counterparts from Venezuela, Iraq and Qatar was good and that he supports cooperation between Opec and non-Opec producers, according to reports.

He told the oil ministry news service Shana that he supports anything to stabilise the market and that this is the first step, but more steps need to be taken, reported Reuters.

The talks followed yesterday’s meeting in Doha, where Saudi Arabia, Russia, Qatar and Venezuela all pledged to freeze oil output, if other producers participated.

Getting Iran to agree is the tricky part and Zanganeh, while positive about the talks, did not explicitly say whether he would agree to freeze output. Iran only recently had its Western sanctions lifted so is obviously keen to ramp up output and make up for lost time.

The price of a barrel of brent crude was up more than three per cent this afternoon to around $33.

“Asking Iran to freeze its oil production level is illogical … when Iran was under sanctions, some countries raised their output and they caused the drop in oil prices.” Iran’s OPEC envoy, Mehdi Asali, was quoted as saying by the Shargh daily newspaper before the meeting, according to Reuters.

“How can they expect Iran to cooperate now and pay the price?” he said. “We have repeatedly said that Iran will increase its crude output until reaching the pre-sanctions production level.”

Oil prices have been painfully low for the past 18 months, mainly due to Saudi Arabia’s “lower for longer” strategy to try and drive out higher-cost competition.

But the Opec leader’s plan has not been working, which is why it is now trying other ways to boost prices.

The market so far is unconvinced. With the countries pledging to freeze production at near-record levels and Iran not yet on board, it is simply not enough to end the mammoth supply glut.

For more analysis, check out the piece I wrote yesterday for London newspaper City AM:
Saudi-Russian pledge to freeze oil production may be smoke and mirrors

ANALYSIS ON TODAY’S NEWS TO FOLLOW SHORTLY

President Trump could put UK exports in jeopardy

The UK’s biggest export partner could be put in jeopardy if Donald Trump were elected President of the United States.

The controversial Republican candidate has suggested putting an eye-wateringly high tariff of 35 per cent (or more!) on imported goods in the US, in a bid to boost home-grown US industry.

His comments seem predominantly aimed at the Chinese market, but if a tariff were wielded on all exports to the US, this could have a marked effect on the UK economy.

The UK exported around £37.4bn-worth of goods to the US in 2014, equating to 12.7 per cent of the UK’s goods exports, according to data from economic think tank Capital Economics. When combining goods and services, the US made up 16.4 per cent of our export market that year – a hefty chunk not to be sniffed at.

Economists have widely condemned Trump’s protectionist policies, arguing that the cost of tariffs would be passed on to US consumers in the form of higher prices. But of course, they could have some of their desired effect and prompt US businesses to choose domestic goods where they have the option.

The UK export market has enough to worry about at the moment, with a potential Brexit and all the uncertainty around EU trade levies that would bring. Getting Trump-ed (geddit?) for crucial exports in the US could have a devastating effect.

Furthermore, by pushing US consumer prices up and squeezing the labour force (by removing illegal immigrant workers and discriminating against legal ones), some think that Trump’s policies could cause a major downturn in the US economy. As the old adage says, when the Dow Jones sneezes, the rest of the world catches a cold…

Are you hoping Trump comes up trumps or are you hanging on for Hillary? Email your thoughts to Hot Commodity at info@hotcommodity.co.uk for the chance to have your comments appear on the blog and win a luxury holiday for two (except not the last bit).

Angela Eagle: we’re all wrestling with our consciences on Syria

Shadow business secretary Angela Eagle would not reveal which way she wanted to vote on air strikes in Syria, but it was clear just how uneasy a topic this is for the deeply divided Labour party as she carefully picked her words.

“There’s no easy, right or wrong answer to Syria,” she said at the Confederation of British Industry’s Medium Sized Business Summit in London today.

“Every MP is wrestling with his or her conscience on what to do.”

Labour leader Jeremy Corbyn is holding meetings today (one just now at 1pm and the other at 6pm) to decide whether to whip MPs to oppose air strikes in Syria. A three-line Labour whip against military intervention would likely put prime minister David Cameron off holding a vote, but it could also trigger a flurry of resignations within the opposition party.

Even more cagey at today’s conference was Lloyd’s boss and City smoothie Antonio Horta-Osorio. I asked him whether the Bank of England’s decision on stress tests tomorrow (ramping up capital requirements, curbing excessive lending) would hinder the bank’s plans to expand its lending to small and medium sized businesses, but he wouldn’t comment further than saying he was “very confident” about tomorrow.

Northern Powerhouse? It needs teeth, says Liverpool-based conglomerate

Chancellor George Osborne made a number of funding pledges in last week’s Autumn Statement to drive his plan of a “Northern Powerhouse”, but Sir Michael Bibby is not convinced.

The managing director of Bibby Line Group, a Liverpool-based company that operates in everything from shipping, financial services and retail through its Costcutter supermarkets acquisition, urged for “more than just words” to support business in the region.

“We need clarity from the government on the Northern Powerhouse. We need more than just words on what they’re doing,” he told the audience at the Confederation of British Industry’s Medium Sized Business Summit in London today.

“As a concept it needs to get some teeth. We need some planning and real investment to happen.”

Bibby Line Group is a £1.715bn turnover business, operating in more than 20 countries and employing 6,500 people, according to the family-owned company’s website.

“We need a unified voice to talk to London and get the funding we need,” he added. “There’s nobody to do it at the moment.”

The comments contrast to the chancellor’s claims last week that he is making the biggest effort in 50 years to close the north-south divide.

The so-called “devolution revolution” aims to give local councils more powers on areas such as business rates, but so far just six out of 38 city regions have struck devolution deals. George has promised funding to improve issues such as transport links between northern cities, but critics say it is simply not enough.

Sir Michael also urged for more clarity from the government on its stance on offshore wind farms in the North Sea, on the day that climate change talks kick off in Paris, with all the world’s leaders in attendance.

“We’re willing to invest there but we need support from the government,” he said.

Tesco chief lashes out at “unsustainable” business rates

Tesco boss Dave Lewis today blasted “unsustainable” business rates on the retail sector and called for urgent government reform.

The chief executive of the supermarket chain told the CBI annual conference that high business rates, combined with the National Living Wage and other policy changes such as the apprenticeship levy, needed to be addressed, or “I fear that it’s communities all over Britain that will suffer”.

“Over last five years property values have fallen, profits are down but business rates are up. Quietly but dramatically,” he said.

“Business rates have hit £8bn for retail. That’s over a quarter of the bill and significantly more than any other sector. That’s an enormous pressure. Shops have closed. Businesses lost. Jobs sacrificed.

“Our own business rates bill has increased by well over 35 per cent in the last 5 years. It’s the biggest tax we pay and it is now three times OECD average. For every £1 we pay in corporation tax large UK retailers pay £2.31 in rates. It’s unsustainable and needs urgent reform.”

Dave called for a re-assessment of how business rates are calculated, including the regularity of reviews and moving from RPI to CPI inflation.

The boss warned that the National Living Wage – the new, higher hourly minimum wage – could come at the expense of benefits packages and said that “collecting taxes through mechanisms like the apprenticeship levy…wipes out the equivalent of our whole training budget”.

Dave, who repeatedly referred to himself as a “new boy” to retail with a “fresh” take on the sector, eschewed suggestions that the supermarket’s turnaround was not working, despite admitting that “the profitability of Tesco in the second half of last year was zero in the UK”.

Tesco, like the rest of the big four, has been struggling to maintain market share and profitability in the face of strong competition from budget discount chains Aldi and Lidl.