Why we’re in the shite, explained with 4 charts.

So here we are, double dip recession, slow growth, debt & deficit going up. Yes yes the rest of the world isn’t doing too great either, even China is slowing down… but we seem to be doing much worse. Why?

First, how did we get here? You hear politicians talk about our “unbalanced economy” – too much emphasis given to financial services etc and not enough to manufacturing, high tech etc. Long time followers of mine know I love stats & charts, so here is what it looks like:

Report for the City of London Corporation by Charles River Associates 2010

So what you say, must be good for the country right? Yes lots of tax for the Treasury to throw around. The significant growth of the financial services sector and light touch regulation also combined to provide lots of easy credit for us plebs. Great! Fabulous! “Please lend me more & more Mr Bank Manager & Mrs Building Society, it may be 9 times income for the 105% mortgage but boom & bust had been abolished (someone once said)”…

But easy credit leads to bubbles, perhaps, just maybe? What do you think? What DID our politicians think? Or thought but didn’t care. Well here are the bubbles in personal credit & property:

Credit Action. The National Money Education Charity

Credit Action. The National Money Education Charity.

So what you say, everyone else was borrowing, the boom & bust had been abolished. Yes but no but yes but here is what people of other countries were borrowing (including government, personal & company):

Yes, our total borrowing  is about £8 TRILLION or 500% of GDP.  Yes, that’s 5 times what this country produces every year.

So why aren’t we spending and pushing up GDP? If you look at the personal debt chart above, you can see we are “deleveraging” – paying down all kinds of debt. Companies are too.

Here is a chart to give the national picture:

That’s not too bad, is it? Well hold on a minute, the debt is now past the £1TN mark and is still going up. We pay more debt interest than we spend on defence. And we mustn’t forget those lovely off-balance sheet PFI projects. Compare the capital costs with the huge repayments below:

We, as in the country, UK companies & population collectively owe more than any other country in the world bar Japan (which has been in stagnation for decades).

PriceWaterhouseCoopers reckon the total UK debt will hit £10 TRILLION by 2015. That’s optimistic.

Just to whet your appetite for another blog post in the pipeline, we also have a public sector pension black hole of about £1.3TRILLION, there’s a chart for that 🙂

The above is a quick illustration of the primary reasons why we are in the collective shite compared to other G20 countries. (Oh yes, I used 6 charts instead of 4, got carried away with chart porn. Bet you didn’t notice)

Government now wants us to spend, spend, spend, and borrow ££ to spend if necessary to improve GDP growth figures … No thank you Mr Prime Minister. That is how we got here in the first place.

The Evil “Markets”

Our national debt is, give or take, around £1.1 TRILLION.

We hear about the “markets” and how they lend money to the UK government to make up for shortfalls between tax revenue & public spending costs every year (the annual deficit), and how the “markets” control the interest rate the government pays on its debts.

So to whom does the government owe the national debt? Are the “markets” made up of evil capitalists chomping on big cigars in smoke-filled rooms plotting the destruction of our societies?

Well, actually the “markets” in this case are primarily you & I.  We, mainly through our savings, life & endowment policy premiums, pensions contributions and even union subscriptions have lent about 75% of the national debt to our own government (the other 25% are lent by foreign institutions and governments)

Of course you & I didn’t write cheques to the government individually, but our banks, life & pension companies, unions etc, directly or indirectly, lent on our behalf.

In theory, we should tell the government not to cut public spending and borrow even more from us, and at higher interest rates.

Awkward, isn’t it?

Companies abuse & shareholders don’t give a sh*t?

Twitter can be a bit like the Wild West where people shoot from the hip at anything that moves before they ask questions.  I came across the tweets below from someone with a large following (my emphasis):

“… private companies … just abuse because their loyalty is to shareholders.

Shareholders are usually a tiny minority of people who don’t give a shit so long as their dividend comes in”

You may think that is an emotive & inaccurate generalisation.  Here are some interesting stats from the Dept for BIS (Oct 2011):

There are 4.5 million small businesses in the UK (including 6,000 companies).

SMEs (up to 249 employees) account for 99 per cent of of all enterprise in the UK, 58.8 per cent of private sector employment and 48.8 per cent of private sector turnover.

SMEs employed an estimated 13.8 million people and had an estimated combined annual turnover of £1,500 billion

A vast majority of the SME companies/businesses are owner-operated, ie the owners/shareholders also work in them. The small family-owned butchers down the road, the IT consultant with a tax efficient corporate vehicle & a couple of employees, GP surgeries, Ken Livingstone …  Do they abuse & don’t give a sh*t?  Hmmm.

Aha, but what the top 1% of enterprises in the UK – the large companies, the multi-national corporations, the newspapers, oil companies, banks (you get the picture). Surely, they abuse & their shareholders don’t give a sh*t except about dividends, right?

You may be surprised some of these shareholders are not “a tiny majority of people who don’t give a shit” as tweeted above.  Quick examples – John Lewis, the obvious one.  Less obvious – both the Church of England Commissioners & the RMT Union have large share investments in banks, financial services companies, multi-national corps & oil companies. The Church also had £2 million worth of shares in Murdoch’s News Corp until recently (yes you read that right).

And who else are shareholders in these large enterprises?  Well, insurance, life & pension companies – eg. Standard Life, Prudential (shareholders in G4S)  – which manage life, endowment & pension policies on behalf of tens of millions of us.  Not sure tens of millions count as a “tiny minority”.

Don’t the shareholders give a sh*t?  Do private companies just abuse?

“I pay my fair share of taxes, others should pay more!”

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Really? You may pay your taxes but that doesn’t always mean you are contributing to the national coffers. You may be a “burden on the State” to use an unattractive & emotive term.

Bear in mind that some 60% of UK households receive more ££ in benefits & public services than the taxes they pay. They are the “net tax consumers”, and supported by the top 40% of households who are the “net tax contributors” and by no means the filthy rich.

The table below sets this out by using averages:

(Sources: ONS Statistics for 2009/10, BBC, PWC, IFS. If you want to examine more closely the various definitions & formulae used in the above table, look here. )

Surprised by these figures? Is your household a net tax contributor or consumer? Think about it next time you say I do my bit but others should do more. We are certainly not all in this tax thing together.

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A Scandal! Theresa May, Prudential & G4S

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Apparently, according to some tweeps on Twitter (and the example below is only one example out of many), the fact that the Home Secretary Theresa May & her spouse own some shares in Prudential, which in turn owns some shares in G4S, is a scandal and somehow makes her “corrupt”.

Is it? Does it?

Here’s a recent announcement from G4S:

The directors have been notified of the following substantial shareholdings at 13 June 2012 in the ordinary capital of G4S plc:

Prudential: 89,325,538 (6.33%) – this includes the 80,962,276 (5.73%) notified separately by M&G Investment Funds.

Legal & General Group Plc: 42,320,310 (3.00%)

So it appears Theresa May & her spouse owns a small, non-controlling shareholding in Prudential, which in turns owns a small, non-controlling shareholding in G4S. As do hundreds of thousands of people who have Prudential AND Legal & General life policies and pensions. Crikey, it seems they are all scandalously corrupt!

By the way, May & her spouse bought the Prudential shares in 2002, quite a few years before the G4S got involved in the Olympics…

It is indeed a scandal. A scandal of many straws being grasped.

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Hope

About 18 days ago, I received some seriously bad news from Vancouver about my mum’s health.  She recently celebrated her 80th birthday but still thinks I’m her baby, regularly phoning to check I am having a balanced diet and advising me to find a woman who can cook (long story… the cooking bit, not the woman bit).

The bad news plunged me into some dark & horrid places; I have been in those places before, sometimes it feels like I have a season ticket (isn’t life great?).  But this time, it is about someone who gave me life, who taught me, who inspired me, who literally *made* me into who & what I am, who always loves me unconditionally and who, despite my late father’s passing over 20 years ago, being of advanced age and having 3 sons with successful careers, has nonetheless steadfastly remained the undisputed head of the family, the north of our emotional compasses, the focus of our futures and a rock to which we have tethered our hearts & souls.  So the bad news came as a thunderbolt and shattered my world which grew darker and darker…

But today, more news arrived and a light has appeared at the end of the tunnel. It is not the solution to the problem, far from it… but it means there is now much hope that she will be with us for much longer than we had dared to dream of.

Hope is all one can have now, hope is the source of strength and hope is what keeps our hearts warm.

But don’t rely on hope, tell your loved ones how you feel about them, right now.  For me, I hope for many more years of maternal nagging & her botched attempts at match-making.

Now, this thing about Ken’s tax avoidance….

Abortion and Counselling

I wholeheartedly agree that ultimately it is the woman’s right to choose whether to terminate her pregnancy and whether to seek counselling beforehand.   However, there is disturbing evidence of biased pre-abortion counselling advice (from both camps) – see this undercover story. Do read it.

The Dorries/Field amendments to the Health & Social Care Bill do not propose compulsory pre-abortion counselling, but seek to remove any counselling role from organisations who currently provide a time-saving “one-stop shop” service – from advice to medical assessment to abortion procedure.  Human nature being what it is, people seek the path of least resistance and a “one-stop shop” is often the easiest path to take.

These organisations have a financial interest as they are paid per abortion.  People say they are charities or “not for profit” organisations so they are not profit-driven.  However it cannot have escaped anybody’s notice that organisations like BPAS & Marie Stopes are run like businesses with marketing departments, large budgets and they have hundreds of jobs, from the well-paid CEO downwards, which depend primarily on the income stream from abortions. The same can be said for some of the large pro-life groups which offer pre-abortion counselling.

Worryingly, the Dorries/Field amendments do not stipulate that the counselling should be *impartial*.  Indeed there will be no restrictions on who can provide the service – indeed any pro-life, pro-choice or neutral groups can do so – as long as they do not perform abortions and are able to meet guidelines (currently set by the Royal College of Obstetricians and Gynaecologists, but may change to NICE under the amendments)

Will this create a messy “free for all” market? Will it become even more confusing and stressful for women who are already under tremendous emotional strain?  It is probable.

So how can we try to ensure that if a woman does want counselling, she has expedited access to an independent service which is impartial, free, expedient, supportive & readily available?

Why not offer such a service (within RCOG guidelines) on, or paid for by the NHS, staffed by public & private sector counsellors who are full & appropriately qualified members of the British Association for Counselling and Psychotherapy (BACP), who have no interest in whether a woman has the abortion eventually and whose sole aim is to help the woman by giving support and counselling.

Just a thought.

PS. I am not in either the pro-life or pro-choice camp, I am a man so I don’t presume to know what a woman feels or thinks, least of all second guess what is best for her. Mine is only a suggestion for an alternative, or an addition to what is available.

Riots & Evictions

First of all, let me make clear that I am neither left wing nor right wing, and I’m not a member of any political party. I am merely a humble solicitor with, I hope, balanced and objective views some of the time.

According to the news, Wandsworth Borough Council has served an eviction notice on a council tenant whose son was convicted of charged with an offence allegedly committed during the recent riots in London.  I do not support this course of action because I believe it is disproportionate, it is an “extra” financial punishment visited upon the innocent family of the convicted and it is the result of (understandable but worrying) knee-jerking by politicians.  And what about innocent until proven guilty…

I have had many discussions on Twitter about this particular matter and there have been many responses in favour of what the council is doing.  I will not rehearse my arguments here because my tweets can be seen on my timeline. I am sure other wiser tweeters have put forward far better examples than I have. I just want to set out a hypothetical example below… no law, just the human costs…

A hard-working family of four lives in a council house in central London – consisting of father, mother, daughter and granddaughter.  The father is the council tenant and he and his wife works full-time on minimum wage at local businesses; the daughter works part-time on minimum wage and her daughter is at a local primary school with many friends. They are happy where they are and neighbours are nice to them – a decent working-class family they call them.

Daughter is then convicted of the theft of a hairdryer from an electrical store 10 miles from the family home. She expressed remorse and pleaded guilty at the first opportunity, she receives a criminal record and a fine but not jailed because she has a young daughter. She loses her job as a nursery assistant due to her criminal record.

The council serves an eviction notice on her father, and let us assume for the moment the court then grants a repossession order at the subsequent hearing (I believe it unlikely, see update)

[ Update – as pointed out by @nearlylegal on Twitter, commission of an offence in the “locality” is a requirement for possible possession, see his blog post .  So in my hypothetical example, assume the electrical store is next to the council property, I do not believe it detracts from the human angle of this post) ]

Anyway, thousands of pounds are paid to their legal aid lawyer to defend the repossession claim. Court time & council legal department time comes to say 2 full days (while other more “appropriate” cases are waiting in the pipeline…)

The whole family is later evicted by bailiffs. They cannot afford to rent privately with their low incomes as the daughter is not working anymore. The family has to move to a cheaper area, and rents a smaller property from a private landlord at a rent 4 times the previous council rent, they apply for housing benefit which is granted. The granddaughter has to change schools and loses all her friends. The father and mother also lose their jobs because they cannot afford to travel from outer London into central London to work on minimum wage.  All three of them apply for jobseeker and income support benefits, they are granted them.  Father now suffers depression and GP prescribes medication free of charge.  The granddaughter now has free school meals. The whole family suffers a tremendous blow to their lives.

The daughter has even less money because she has to pay the court fine out of her child benefit money for years to come. She is tempted to shop lift so her daughter can have new school shoes, but decides she has caused enough trouble for everyone. But another person may commit further crimes – has nothing to lose now…

The taxpayers pays thousands more ££ in legal fees, benefits and prescriptions. The family uprooted & lives damaged.  Some might say their benefits should also be withdrawn, well that means sleeping rough, probably driven to crime in order to survive (how else can they eat?), more illness and child taken into care.

Now contrast the above with what might happen to a millionaire’s daughter who is convicted of the same offence of stealing a similar hairdryer at that same electrical store. She pays her fine, gets a criminal record, goes to work for daddy and carries on as before. Even if she loses her job with no daddy to work for, she will STILL get benefits.

I always remind myself of Colonel Tim Collins’ 2003 Eve of Battle speech to his troops in Iraq, he said:

” … if you are ferocious in battle, remember to be magnanimous in victory… “

How civilised a society is can be judged from the way it treats its poor and yes, even criminals. Should the punishment fit the crime?  People living in council homes are not second class citizens, are they?

PS. I have not dealt with Human Rights aspects, nor whether councils can be challenged if they do not evict tens of thousands of other tenants under similar circumstances as above but where the convictions were prior to the riots, or indeed 6 months from now.

You can’t have your cake & eat it

Various soundbites have been thrown by “anti-coalitionists” against the current government. Some are justified, some not. But four of them are particularly annoying.

“This government has no democratic mandate”

The Conservatives received a higher share of the votes cast (36.1%) in 2010 than Labour did in 2005 (35.2%) but the latter still formed a majority government because of inherent bias in the electoral system. The Coalition government has 59.1% of the votes cast (Con. 36.1%, LibDem 23%).

Would anti-coalitionists throw the same soundbite against a Lib/Lab coalition with only 52% of the votes cast (Lab 29%, LibDem 23%)?  I bet the answer is no.

“The Government has done another U-turn! Ha ha!”

This was thrown about when it was announced that Ken Clarke’s proposed policy for shorter prison sentences might be abandoned.  It comes after the abandonment of plans to sell off some of our forests and the part amendment of the NHS Reform Bill due to public and professional opposition.  Surely, we want our government to listen!?

Would anti-coalitionists be happier if the government refuses to listen. I bet the answer is no.

“No one voted for the Coalition government’s policies”

Even the Archbishop of Canterbury has joined in the slinging of this well-worn soundbite. Doh! It is a coalition and that is how it rolls.  Indeed, no one voted for the Libyan No Fly Zone nor, during the Labour government, for the Iraq war, the introduction then scrapping of the 10p tax band, the hike in National Insurance contribution rates, the raid on pension funds or the selling of our gold…. I am sure you get the gist, I can go on but it will be a pointless exercise.

Would anti-coalitionists be happier if all Tory manifesto promises were put into legisliation? Eg. Raising the inheritance tax free threshold to £1 million?  I bet the answer is no.

“This government is cutting too deep, too fast”

The answer according to the IMF is no.  But of course, the Labour Party has a very well known Plan B here .

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The Chinese are coming! We are the takeaway.

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It cannot have escaped people’s notice that China is getting stronger economically and may overtake the USA as the world No. 1 economic power in less than a decade. She already holds a huge stockpile of US bonds & her foreign currency reserves are in $Trillions; there is already talk about the Chinese Yuan becoming the “Reserve Currency” in place of the US$, and that will give her the edge over other nation states in world trade and currency conversions. Militarily, China has the largest army, with over 3 million members, making the People’s Liberation Army the largest employer in the world.

She has also been investing heavily in Africa where a lot of the world’s resources can be found. European sovereign debts? Yes China has bought plenty of those too. She is on a war path, an economic one. The long term plan? Takeover the world of course, but doing it before oil starts running out in probably 20/30 years’ time. By then, she will have built up her infrastructure and power for world domination.

Should the West worry? Oh yes! Unless the West can compete with China (and the likes of India), it will slowly go into economic decline. Asian countries have different familial, educational and social cultures, plus “hard work” ethics which seem to be hardwired into the Asian psyche. A little known fact is that in China, private enterprise produces up to 70% of her GDP, communist she isn’t. Also, the Chinese/Koreans/Indians are far more productive & efficient per capita than their Western counterparts. (loose language alert – I meant the goods & services from these Asian countries can be produced & sold more cheaply due to cheaper labour costs, I do not mean they have higher GDP productivity per capita than the West)

One might say Chinese workers should be paid more and the wealth held by so few in China should be more evenly distributed. Well, nearly a quarter of the world’s population lives in China and that is a handsome source of cheap labour. One can always pray & hope that Chinese wealth will be spread more evenly but that is unlikely to happen for a long time yet. If anything, the Chinese thinks the West is lazy and has an entitlement culture.

China also has a stable political system, whether you agree with it or not, and which facilitates long term strategic planning and control over the nation and people. Some call it State capitalism, the ruling party calls it socialism with Chinese characteristics. We in the West cannot rely on what the Chinese may or may not do in the future, we need to think about concrete solutions now.

So how can the West compete? This country has been too reliant upon financial services and the consumer credit/proper bubbles in the last decade. People have enriched themselves, paradoxically, on debt. UK has fallen behind others in the EU like Germany on manufacturing, and certainly well behind China. Even the EU countries and the US are now experiencing low growth and the situation could become worse. There will be sovereign debt crisis in Europe if the current profligate paths remain unchanged, Greece will be the first to fall….

Will UK Plc catch up with China? I doubt it. We might disagree with how Chinese businesses employ workers but the fact is pound for pound, the Chinese can produce goods far more cheaply than we can. Will foreign investments be diverted to China and other Asian Pacific countries? And how about financial services that we have come to rely upon so heavily? Well, we are seeing world’s largest banks moving more resources to the East, that should tell you something worrying.

I am not an expert on world economy but I can see that unless things change, this country will become poorer and poorer… lower foreign investments (remember our high taxes?), lower national income from financial services and exports, trade imbalance, stagnation/fall of wage levels & property prices, longer working hours, a smaller social security safety net? But at the same time larger pensions & NHS bills (to cater for the fast ageing population). I note here that China also has that problem due to her “one child only” policy. Another reason why she must build her strength now before the old outnumbers the young in China.

Can our government afford to spend what it has been spending in the last few decades? The answer must be a resounding “no”. We are swamped in debt in this country, the State, the people & our companies, it’s not sustainable. Of course, the structural deficit has to be dealt with and we must encourage private sector growth. There have been many arguments in the public domain about cuts to services and welfare benefits BUT, unpalatable as it may sound, we do need to think whether we should voluntarily let our collective “standard of living” fall say by 25% or so in order for UK plc to compete with the East, before we are forced to ….

The Chinese are coming, we are the takeaway.