How do we prevent a government ’scorched earth policy’?

Although the result is far from a foregone conclusion, the favourites for victory in the 2010 general election must be the Conservative Party. Given that the current Labour government are as aware of this as everyone else, their planning and decision making can’t fail to be influenced by that knowledge.  As we mentioned in our ‘The recession isn’t ending‘ post, this sort of situation could lead to a ’scorched earth policy’, or similar.

Our current constitution includes no mechanism for penalizing an outgoing government, which acts against the best interests of the nation, rather than act in a way, which might help the incoming administration. Whilst ’scorched earth’, or ‘poisoning the water supply’ policies might be more drastic and easily recognisable, even abdication of responsibility is undesirable. It is conceivable that an incumbent administration might fail to respond to the needs of a nation, rather than allow their soon to be victorious rivals to take the credit.

Unsurprisingly, the possibility of such a scenario has been noted in Tory circles:

• The most dangerous thing in Britain is the nothing-to-lose Labour Party
• The start of scorched-earth policy?

It is unlikely that any weak, outgoing government hasn’t been influenced in this manner to some degree. The question is, how do we modify our constitution to ensure governments actually act in the best interests of the people they represent, regardless of political circumstances? This should be a fundamental tenet of natural politics.

Now the UK Border Agency is at it

Today’s political news includes the story about thirty UK Border Agency officials, who are due to receive around £10,000 each in bonuses. Apparently, this is a reward for strengthening our borders and clearing some (not all) of the backlog of asylum applications.

Maintaining our borders is part of the Border Agency’s basic role. People shouldn’t receive bonuses for delivering what’s in their basic job descriptions. There’s a lot of evidence to suggest our borders are anything but under control: according to the Office of National Statistics, UK population growth shifted from a predominantly natural pattern (i.e improved healthcare and greater longevity) to migration in 2002, when “net migration accounted for over 70% of the total population change”. The Optimum Population Trust estimate the UK population at over 62 million next year, growing by a further 4.5 million over the next ten years.

In January this year, Lin Homer, UK Border Agency Chief Executive, responded to a report by the National Audit Office (‘Management of asylum applications by the UK Border Agency‘), with apparent pride in a job well done. Ms Homer’s response included the admission that they weren’t expecting to clear the backlog of legacy cases before 2011.

Ministers claim that Border Agency officials’ bonuses are revenue related, as visa fees generate income. However, visa fee revenues don’t appear to be down to the efforts of agency staff, who could hardly be described as ‘visa sales reps’. Also, there doesn’t appear to be any published evidence that the size of Border Agency bonuses is in any way related to the value of visa revenues.

This is just the latest example of the inappropriate and ill-founded bonus culture, which has prevailed for too long at senior levels within too many organizations. At the moment there is a groundswell of opinion in favour of ending this method of rewarding executives and high ranking officials. With next year’s general election firmly in the sites of our major political parties, there is an opportunity to address this issue and establish fair, sensible and accountable means of remuneration. It’s important, however, that this isn’t allowed to become an all out ‘witch-hunt’; bonuses have their place and ‘bonus’ shouldn’t be allowed to become a dirty word.

Let the RBS directors resign

The Royal Bank of Scotland (RBS) directors have tried to justify paying their investment bankers a massive £1.5 billion in bonuses with a number of arguments:

• In order to remain competitive and retain the most talented banking professionals, they must pay the going rates for their industry.
• They say their legal advisers have told them they’d would have to resign, if they failed to pay the bonuses, as they’d be in breach of contract.
• The RBS investment banking division has made around £6 billion profit this year, for which £1.5 billion is a fair bonus total.

So let’s look at these claims:

• The only people who seem to think the current banking industry remuneration levels are fair, are the bankers. This is an opportunity for the rest of the world to break this ridiculous, self-serving and self-perpetuating cycle. The argument that RBS would lose their best people fails on two counts: Firstly, if they’re so good, how did RBS and most other financial institutions get the world into its current monumental fiscal mess? Secondly, until someone makes a stand on this issue, banks will always be able to use this argument and maintain artificially inflated income packages.
• If the directors would be in breach of contract, surely the government, as our representatives – currently 70% of RBS is publicly owned – are responsible for ensuring that any contracts drawn up support the nation’s best interests, rather than those of a few excessively over-rewarded individuals. Also, if they really want to resign, let them; let’s create an opportunity for some ‘new blood’ to reach the highest levels of their profession, whilst retaining a realistic view of their earnings potential.
• The £6 billion profit figure pales into insignificance, compared to the £25 billion pounds of our money the government used to refinance RBS. The thousands of small and medium sized businesses RBS and its fellow organizations refuse to lend money to could all turn a profit if they were able to enjoy the same type of luxury (also see “The recession isn’t ending“).

Executive bonuses, in banking and other sectors, should be set at realistic levels and dependent on real success. High achieving professionals should be rewarded well, in order to provide genuine incentives and retain the best people. However, simple measures, such as deferring bonuses for three years (already a common practice in some industries) and paying some rewards in the form of share options, could reduce risk taking significantly; it could also encourage behaviour more supportive of an organization’s long term future.

Alistair Darling must defend the nation’s best interests in this matter and, if necessary, let the RBS directors walk. This could send out a strong message to the senior executives of other institutions with or without significant public investment. Perhaps other nations might take note too?

The recession isn’t ending

The government would have us believe the recession is ending, but we don’t see much evidence of it. At this time of year, when many businesses should be shipping more goods than usual, trade and industrial packaging suppliers expect to enjoy their busiest quarter. As a result, the packaging industry is a good barometer of a large cross section of businesses in general. Our direct contacts within the packaging industry inform us that they, their suppliers and competitors are in decline, with many going out of business altogether.

Banks are still paying big bonuses but either not lending, or lending at inflated rates; 6.5% is common, when the base rate is 0.5% currently. SMEs (Small and Medium-sized Enterprises), including what’s left of Britain’s manufacturing and engineering industries are going to the wall due to poor cash flow and an inability to borrow.

So why won’t the present government bring pressure to bear on the banks currently in public ownership? If they were to give business a much needed helping hand, but fail to win next year’s general election, the incoming government might well take the credit. How much does this sort of reasoning feature in the actions of a weak, outgoing government? If it does happen, or ever has happened, it could lead to a highly undesirable form of ’scorched earth policy’. The problem is, how do we prevent such a thing?

Also see “Let the RBS directors resign“.

Is Great Britain plc heading for bankruptcy?

The government tells us we are coming out of recession, but our experience suggests that may not be true:

The packaging industry, a good barometer of trade in general, appears to be struggling. Our packaging industry insider informs us that companies are either going bankrupt, or reporting unseasonably low sales for what should be their busiest period. The main problems seem to be:

• Reduction in orders
• Slow payment for goods supplied
• Reduced profits due to squeezed margins
• Rising utility costs and business rates

It might be easier to weather the storm with the aid of short term financing, but the banks either won’t lend, or will only do so at highly inflated rates.

The government must exercise some control over the banks WE own and force them to lend at sensible rates.

Oil prices are low, but forecourt fuel prices are rising. This has a huge effect on business and our government must address the issue.

Direct taxation – a fair and honest solution

Taxation has always been a shady, confusing and unpopular business. However, taxes are a necessary evil. We’re used to governments promising to improve services across our country whilst reducing taxes. Since this isn’t possible, the usual scenario is that stealth taxes are employed, in an attempt to redress the balance. Another common practice is the diversion of tax revenues to wherever there’s a current shortage. There’s nothing to stop a chancellor from using money raised through national insurance contributions to fund activities which are unconnected with healthcare or related services. A lot of the money raised through taxation appears to end up in a sort of national slush fund, which forms part of a ‘robbing Peter to pay Paul’ budgeting process. If a family attempted to run its budget in this manner, it would soon run into trouble. Why should our government be any different?

Surely, a fairer and more accountable system would be for a government to issue a budget statement listing all the national income and expenditure for the previous year and the true projected figures for the coming year. This would result in a total bill, to be met by the nation. Taxation can be broken down fairly and logically by area, with funds being raised at the point where they’re required.

e.g.
The cost of developing and maintaining the national motorway network can come from road fund licence (tax discs) and vehicle insurance taxes. Local road maintenance could also be subsidised from the ‘national pot’, with a regional allocation being based on the size of that region’s road infrastructure. The important point here, is that money raised through road fund licences and vehicle insurance taxes may only be spent on roads and directly related areas.

Likewise, money raised through national insurance contributions would only be allowed to be spent on national health, state pensions and directly related areas.

This model could be applied to every national financial commitment identified in the budget statement, with some central costs, such as defence, being funded through traditional income tax.

The national coffers belong to us, not the government. Our politicians are public servants, entrusted with the task of managing our national funding  and spending wisely. Every citizen is entitled to a clear and honest breakdown of where and how our money is being raised and spent.

A more effective unemployment solution?

Unemployment benefit costs the taxpayer a fortune and can lead to the infamous ‘unemployment trap’ for unskilled and/or low paid jobs.

Surely, if the government subsidised employers, who take on long term unemployed, it could cost less than paying benefits, improve British business and get people back to work.

The employer can pay the minimum wage, topped up by the government subsidy, making a decent income. This allows businesses to employ more people and still be competitive. At the same time, less taxpayers money is spent on unemployment benefits and the economy gets a boost.

Fair import levies

How about an import levy on all products manufactured by companies, which don’t pay the minimum wage and don’t meet basic European health & safety requirements etc. This could reduce unfair overseas competition, encourage good overseas working practices and make British / European manufacturing more competitive.

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